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F ederal

reserve

Bank

of

Dallas

FISCAL AGENT OF THE UNITED ST AT E S

DALLAS, TEXAS

75222
Circular No. 72-149
July 21, 1972

PROGRAM FOR FURTHER EXPANSION OF BOOK-ENTRY
PROCEDURE FOR TREASURY SECURITIES
To all Banking Institutions and Others Concerned
in the Eleventh Federal Reserve D istrict:
As announced in our Circular No. 71-99, dated May 3,1971, last year the Federal Reserve Banks
and the United States Treasury D epartm ent undertook an accelerated program for the fu rth er
expansion of the book-entry procedure for Treasury securities, designed to extend the book-entry
procedure to securities held by member banks for account of th eir customers. Before then, the
book-entry procedure had been limited to Treasury securities held in custody prim arily in safe­
keeping accounts for member banks, a t the Reserve Banks. As planned a t th a t time, th e first phase
of the expanded program was applied to the member banks which are participants in the New York
Government Securities Clearing A rrangem ent. Over th e past year, the program has been gradually
extended to cover the securities held by those banks (a) for account of th eir customers — including
customers which are nonbank dealers in Government securities — and (b) as their “dealer”
inventory, in those cases in which the bank is a prim ary dealer in Government securities.
In the light of the operating experience with the first phase of the program over the p ast year,
operating procedures and patterns have been developed to serve as a basis for th e extension of the
program to all member banks throughout the country. Some of the procedures developed required
fu rth er amendments to Subpart 0 of Treasury Circular No. 300 — the Treasury regulation govern­
ing the book-entry procedure, which had been revised last April to provide the basis for th e first
phase of th e expanded program. A copy of Subpart 0 as amended April 7, 1971, was transm itted
to you with our Circular of May 3, 1971. The amendments to Subpart 0 necessary to implement
the fu rth e r extension of the program were made effective on April 27, 1972; a copy of the revised
Subpart 0 incorporating such amendments is enclosed for your information. This copy of Subpart 0
supersedes the copy sent to you last year.
The recent amendments to Subpart 0 are designed to simplify th e procedures for opening and
m aintaining book-entry accounts. Most im portant, the concept of “book-entry custodian” has been
eliminated. In addition, the revised regulation no longer requires th a t the member bank m ust obtain
the express consent of the holder of the security to convert it into book-entry form. In general,
the new rules are designed to p attern the procedures for th e tran sfer and pledge of book-entry
securities more closely to existing commercial practices involving definitive securities. They provide,
in effect, th a t book-entry Treasury securities, including such securities held by member banks for
account of their customers and maintained in book-entry form, may be transferred or pledged —
w ithout notice or advice to the Reserve Bank — by any means th a t would be effective to tran sfer
or pledge the security if it were maintained by the Reserve Bank in bearer definitive form. Subpart
0 continues to provide th a t book-entry Treasury securities may also be transferred or pledged, in
appropriate cases, by entries on the books of a Reserve Bank.
The Federal Reserve Banks are now preparing new operating rules, based on th e revised
Subpart 0, which will provide for the extension of the book-entry program to the securities held
by member banks for account of their customers, including customer and tru s t accounts of their
correspondent banks. Such rules will be published in this Bank’s Bulletin No. 7 and Fiscal Agency
Operating Circular No. 3. I t is contemplated th a t under such rules, and under similar rules in other

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Federal Reserve D istricts, each member bank would have the option of m aintaining either a single
pooled book-entry account a t a Federal Reserve Bank, including its own securities as well as the
securities of its customers, or several separate book-entry accounts containing the bank's invest­
ment, trading, customer, and tru s t securities. Such account or accounts would be in addition to any
book-entry accounts maintained by this Bank for Treasury securities held as collateral for advances
by this Bank, as collateral for Treasury Tax and Loan accounts, or as collateral for other specific
accounts for which this Bank acts as custodian.
It is expected th a t several United States Government agencies will be issuing separate regula­
tions in the near futu re th a t will provide for the application of the book-entry procedure to most
of their obligations. In this connection, studies are now in progress w ithin the Federal Reserve
System to develop operating procedures and supporting documentation th a t would provide for the
tra n sfer of eligible book-entry agency securities over the Federal Reserve wire system and the
maintenance of such securities in book-entry form a t the Federal Reserve Banks.
Pending the development of detailed operating procedures for such book-entry accounts, and
the issuance of revised Operating Circulars by this Bank, the officers in charge of Fiscal Agency
activities a t each of our offices will be pleased to discuss with member banks in this D istrict any
questions they may have concerning the expanded program, and to review with them th eir plans
for utilizing the new procedures.
Yours very truly,
P. E. Coldwell
President

Enclosure

GENERAL REGULATIONS WITH RESPECT TO UNITED STATES SECURITIES

1972
Sixth Amendment
Department Circular No. 300
Third Revision
dated December 23, 196U,
as amended and supplemented

DEPARTMENT OF THE TREASURY
Washington, April 27, 1972

Fiscal Service
Bureau of the Public Debt

Subpart 0 of Treasury Department Circular No. 300, Third
Revision, dated December 23, 196U, as amended and supplemented
(31 CFR Part 306), is hereby further amended and issued in
its entirety as follows:
SUBPART 0 — BOOK-ENTRY PROCEDURE
Sec.

306.115.

Definition of t e r m s .

In this subpart, unless the context otherwise requires
or i n d i c a t e s :
(a)
"Reserve Bank" means a Federal Reserve Bank and its
branches acting as Fiscal Agent of the United States and when
indicated acting in its individual capacity.
(b)
"Treasury security" means a Treasury bond, note,
certificate of indebtedness, or bill issued under the Second
Liberty Bond Act, as amended, in the form of a definitive
Treasury security or a book-entry Treasury security.
(c)
"Definitive Treasury security" means a Treasury
bond, note, certificate of indebtedness, or bill issued under
the Second Liberty Bond Act, as amended, in engraved or
printed form.
(d)
"Book-entry Treasury security" means a Treasury bond,
note, certificate of indebtedness, or bill issued under the
Second Liberty Bond Act, as amended, in the form of an entry
made as prescribed in this subpart on the records of a Reserve
Bank.
(e)
"Pledge" includes a pledge of, or any other security
interest in, Treasury securities as collateral for loans or
advances or to secure deposits of public monies or the p er­
formance of an obligation.

2
(f)
"Date of call" (see Sec. 306.2) is "the date fixed
in the official notice of call published in the Federal
Register * * * on which the obligor will make payment of the
security before maturity in accordance with its terms."
(g)
"Member bank" means any national bank, State bank
or bank or trust company which is a member of a Reserve Bank.
Sec.

306.1l6.

Authority of Reserve B a n k s .

Each Reserve Bank is hereby authorized, in accordance
with the provisions of this subpart, to (a) issue book-entry
Treasury securities by means of entries on its records which
shall include the name of the depositor, the amount, the loan
title (or series) and maturity date; (b) effect conversions
between book-entry Treasury securities and definitive Treasury
securities; (c) otherwise service and maintain book-entry
Treasury securities; and (d) issue a confirmation of trans­
action in the form of a written advice (serially numbered or
otherwise) which specifies the amount and description of any
securities, that is, loan title (or series) and maturity
date, sold or transferred and the date of the transaction.
Sec.

3 0 6 .II7 .

Scope and effect of book-entry p r o c e d u r e .

(a)
A Reserve Bank as Fiscal Agent of the United States
may apply the book-entry procedure provided for in this sub­
part to any Treasury securities which have been or are her e ­
after deposited for any purpose in accounts with it in its
individual capacity under terms and conditions which indicate
that the Reserve Bank will continue to maintain such deposit
accounts in its individual capacity, notwithstanding applica­
tion of the book-entry procedure to such securities.
This
’ * applicable, but not limited, to securities

(l)
its individual capacity)

as collateral pledged to a Reserve Bank
for advances by it;

(2)

by a member bank for its sole account;

(3)

by a member bank held for the account of its

customers;
(U)
in connection with deposits in a member bank
of funds of States, municipalities, or other political
subdivisions; or,

/1
See the Attachment to this subpart for rules of
identification of book-entry securities for Federal income
tax p u r p o s e s .

(i

3
(5)
in connection with the performance of an obli­
gation or duty under Federal, State, municipal, or local law,
or judgments or decrees of courts.
The application of the book-entry procedure under this para­
graph shall not derogate from or adversely affect the r e l a ­
tionships that would otherwise exist between a Reserve Bank
in its individual capacity and its depositors concerning any
deposits under this paragraph.
Whenever the book-entry proce­
dure is applied to such Treasury securities, the Reserve Bank
is authorized to take all action necessary in respect of the
book-entry procedure to enable such Reserve Bank in its in­
dividual capacity to perform its obligations as depositary
with respect to such Treasury securities.
(b)
A Reserve Bank as Fiscal Agent of the United States
shall apply the book-entry procedure to Treasury securities
deposited as collateral pledged to the United States under
Treasury Department Circular Nos. 92 and 176, both as revised
and amended, and may apply the book-entry procedure, with the
approval of the Secretary of the Treasury, to any other
Treasury securities deposited with a Reserve Bank as Fiscal
Agent of the United States.
(c)
Any person having an interest in Treasury securities
which are deposited with a Reserve Bank (in either its indi­
vidual capacity or as Fiscal Agent) for any purpose shall be
deemed to have consented to their conversion to book-entry
Treasury securities pursuant to the provisions of this s u b p a r t v
and in the manner and under the procedures prescribed by the
Reserve Bank.
(d) No deposits shall be accepted under this section
orafter the date of maturity or call of the securities.
Sec.

306.1l8.

on

Transfer or p l e d g e .

(a) A transfer or a pledge of book-entry Treasury secu­
rities to a Reserve Bank (in its individual capacity or as
Fiscal Agent of the United States), or to the United States,
or to any transferee or pledgee eligible to maintain an appro­
priate book-entry account in its name with a Reserve Bank
under this subpart, is effected and perfected, notwithstanding
any provision of law to the contrary, by a Reserve Bank making
an appropriate entry in its records of the securities trans­
ferred or pledged.
The making of such an entry in the records
of a Reserve Bank shall (l) have the effect of a delivery in
bearer form of definitive Treasury securities; (2) have the
effect of a taking of delivery by the transferee or pledgee;

k

(3) constitute the transferee or pledgee a holder; and (^) if
a pledge, effect a perfected security interest therein in
favor of the pledgee.
A transfer or pledge of book-entry
Treasury securities effected under this paragraph shall have
priority over any transfer, pledge, or other interest, there­
tofore or thereafter effected or perfected under subsection
(b) of this section or in any other manner.
(b)
A transfer or a pledge of transferable Treasury
securities, or any interest therein, which is maintained by a
Reserve Bank (in its individual capacity or as Fiscal Agent
of the United States) in a book-entry account under this sub­
part, including securities in book-entry form under Sec.
3 0 6 .1 1 7 (a)(3 ), is effected, and a pledge is perfected, by any
means that would be effective under applicable law to effect
a transfer or to effect and perfect a pledge of the Treasury
securities, or any interest therein, if the securities were
maintained by the Reserve Bank in bearer definitive form.
For
purposes of transfer or pledge hereunder, book-entry Treasury
securities maintained by a Reserve Bank shall, notwithstanding
any provision of law to the contrary, be deemed to be m a i n ­
tained in bearer definitive form.
A Reserve Bank maintaining
book-entry Treasury securities either in its individual capa­
city or as Fiscal Agent of the United States is not a bailee
for purposes of notification of pledges of those securities
under this subsection, or a third person in possession for
purposes of acknowledgment of transfers thereof under this
subsection.
A Reserve Bank will not accept notice or advice
of a transfer or pledge effected or perfected under this sub­
section, and any such notice or advice shall have no effect.
A Reserve Bank may continue to deal with its depositor in
accordance with the provisions of this subpart, notwithstanding
any transfer or pledge effected or perfected under this
subs e c t i o n .
(c)
No filing or recording with a public recording
office or officer shall be necessary or effective with respect
to any transfer or pledge of book-entry Treasury securities or
any interest therein.
(d)
A Reserve Bank shall, upon receipt of appropriate
instructions , convert book-entry Treasury securities into
definitive Treasury securities and deliver them in accordance
with such instructions ; no such conversion shall affect existing
interests in such Treasury securities.
(e)
A transfer of book-entry Treasury securities within
a Reserve Bank shall be made in accordance with procedures

5
established by the Bank not inconsistent with this subpart.
The transfer of book-entry Treasury securities by a Reserve
Bank may be made through a telegraphic transfer procedure.
(f)
All requests for transfer or -withdrawal must be made
prior to the maturity or date of call of the securities.
Sec.

306.119.

Withdrawal of Treasury s ecur i t i e s .

(a)
A depositor of book-entry Treasury securities may
withdraw them from a Reserve Bank by requesting delivery of
like definitive Treasury securities to itself or on its order
to a transferee.
(b)
Treasury securities which are actually to be deliv­
ered upon withdrawal may be issued either in registered or in
bearer form, except that Treasury bills and EA and EO series
of Treasury notes will be issued in bearer form only.
Sec.

306.120.

Delivery of Treasury s e c u r i t i e s .

A Reserve Bank which has received Treasury securities
and effected pledges, made entries regarding them, or trans­
ferred or delivered them according to the instructions of
its depositor is not liable for conversion or for participa­
tion in breach of fiduciary duty even though the depositor
had no right to dispose of or take other action in respect of
the securities.
A Reserve Bank shall be fully discharged of
its obligations under this subpart by the delivery of Treasury
securities in definitive form to its depositor or upon the
order of such depositor.
Customers of a member bank or other
depositary (other than a Reserve Bank) may obtain Treasury
securities in definitive form only by causing the depositor of
the Reserve Bank to order the withdrawal thereof from the
Reserve Bank.
Sec.

306.121.

Resist ered bonds and n o t e s .

No formal assignment shall be required for the conversion
to book-entry Treasury securities of registered Treasury secu­
rities held by a Reserve Bank (in either its individual capa­
city or as Fiscal Agent) on the effective date of this subpart
for any purpose specified in Sec. 306.117(a).
Registered
Treasury securities deposited thereafter with a Reserve Bank
for any purpose specified in Sec. 306.117 shall be assigned
for conversion to book-entry Treasury securities.
The assign­
ment, which shall be executed in accordance with the provisions
of Subpart F of the regulations in this part, so far as appli­
cable, shall be to "Federal Reserve Bank of _______________, as

6
Fiscal Agent of the United States,
entry Treasury securities."
Sec.

306.122.

for conversion to book-

Servicing book-entry Treasury securities;
payment of interest, payment at maturity
or upon c a l l .

Interest becoming due on book-entry Treasury securities
shall be charged in the Treasurer's account on the interest
due date and remitted or credited in accordance with the
depositor's instructions.
Such securities shall be redeemed
and charged in the Treasurer's account on the date of matur­
ity, call or advance refunding, and the redemption proceeds,
principal and interest, shall be disposed of in accordance
with the depositor's instructions.

John K. Carlock
Fiscal Assistant Secretary
of the Treasury

T
ATTACHMENT
SUBPART 0 — BOOK-ENTRY PROCEDURE
TREASURY DEPARTMENT CIRCULAR NO. 300
THIRD REVISION, SIXTH AMENDMENT

Records

for Federal Income Tax Purposes

There are attached three documents in connection with
the book-entry procedure which simplify recordkeeping for
Federal income tax purposes.
They apply to transferable
Treasury bonds, notes, certificates of indebtedness or bills
issued under the Second Liberty Bond Act, as amended, and to
"any other security of the United States."
The quoted term
is defined to include a bond, note, certificate of indebted­
ness, bill, debenture or similar obligation which is subject
to the provisions of 31 CFR, Part 306, or other comparable
Federal regulations and which is issued by any department or
agency of the Government of the United States , or the Federal
National Mortgage Association, the Federal Home Loan Banks,
the Federal Land Banks, the Federal Intermediate Credit
Banks, the Banks for Cooperatives, or the Tennessee Valley
Authority.
The three documents

are:

(1)
The substance of Treasury Department Decision 7081,
published in the Federal Register on December 31, 1970;
(2)
Revenue Ruling 71-21, published in Internal Revenue
Bulletin 1971-3, dated January 1 8 , 1971; and
(3)
Revenue Ruling 7 1 - 1 5 9 published in Internal Revenue
Bulletin 1971-3, dated January 18, 1971*
The first document modifies the tax identification rules
regarding the determination of basis and holding period of
securities held as investments.
It applies to the sale or
transfer of book-entry securities pursuant to a written in­
struction by a taxpayer.
It permits the taxpayer in its
written instruction to its bank or to the person through whom
the taxpayer makes the sale or transfer to identify the

8
securities being sold or transferred by specifying the unique
lot number -which he has assigned to the lot containing them.
The taxpayer may make the specification either--(a) in
the written instruction, or (b) in the case of a taxpayer
having a book-entry account at a Reserve Bank, in a list of
lot numbers with respect to all book-entry securities on the
books ofthe Reserve Bank sold or transferred by
him on
that
date, provided the list is mailed to or received by the
Reserve Bank on or before the latter's next business day.
These provisions apply only if the taxpayer assigns lot
numbers in numerical sequence to successive purchases of
securities in the same loan title (series) and maturity date,
except that securities of the same loan title (series) and
maturity date which are purchased at the same price on the
same date may be included within the same lot.
The
written advice of transaction furnished to the
t ax­
payer by
the Reserve Bank, or by his bank or any other person
through whom the taxpayer makes the sale or transfer, which
specifies the amount and the description of the securities
sold or transferred and the date of the transaction is suffi­
cient confirmation.
The Reserve Bank need not use or refer
to the lot number.
The second document concerns an owner of securities who
has assigned sequential numbers to his successive purchases.
The owner retains full interest in the securities but trans­
fers them to a bank which has a book-entry account with a
Reserve Bank, or to another party which transfers them to a
bank which has a book-entry account with a Reserve Bank.
When at a later date the bank instructs the Reserve Bank
to sell or transfer securities held in book entry for its
customer, the bank need not refer to the sequential number
which had been assigned on the owner's books.
The tax identification requirements are satisfied if the
owner's written instruction to his bank or to the person
through whom the taxpayer makes the sale or transfer suffi­
ciently identifies the securities to be sold or transferred
and refers to the lot number assigned to them in the owner's
books.
The bank's instruction to the Reserve Bank will not
refer to lot numbers; the Reserve Bank will confirm the sale
to the bank in the manner it deems appropriate.
The member
bank will confirm the sale or transfer to its customer by
furnishing a written advice of transaction specifying the
amount and description of the securities sold and the date of
sale.
The confirmation need not refer to lot number.

9

This document also permits substantially the same kind
of identification and confirmation procedures when securities
are purchased through the book-entry account for the bank's
cus to m e r s .
The third document provides that a dealer, -who properly
holds securities in inventory in accordance with section
1.U71-5 of the Income Tax Regulations and proposes to tran s­
fer them to a book-entry system in a Reserve Bank, will con­
tinue to maintain his books and records for Federal income
tax purposes with respect to such securities in accordance
with section 1.1+71-5 of the regulations and not section
1.1012-1 of the regulations.

The substantive portion of T.D.
1 9 7 0 , reads as follows:

7081,

approved December 26,

TITLE 26— INTERNAL REVENUE
CHAPTER I— INTERNAL REVENUE SERVICE,
DEPARTMENT OF THE TREASURY
SUBCHAPTER A — INCOME TAX
PART 1— INCOME TAX:

TAXABLE YEARS BEGINNING AFTER DECEMBER 31, 1953

Identification of Federal Book-Entry securities
In order to modify the identification rules for purposes
of determining basis and holding period of property in the
case of certain Federal securities, paragraph (c)(7) of Sec.
1.1012-1 of the Income Tax Regulations (26 CFR Part l) is
amended to read as follows:
Sec. 1.1012-1
*

Basis
*

of property.
*

*

(c )
(7)

(3)(i)(a)

Sale of s t o c k .

*

* * *

Book-entry s e c u r i t i e s .

(i)
In applying the provisions of subparagraph
of this paragraph in the case of a sale or transfer

1 0

of a book-entry security (as defined in subdivision
(iii)(a) of this subparagraph) which is made after
December 31, 1970, pursuant to a written instruction
by the taxpayer, a specification by the taxpayer of
the unique lot number which he has assigned to the
lot which contains the securities being sold or
transferred shall constitute specification as r e ­
quired by such subparagraph.
The specification of
the lot number shall be made either-(a,)

In such written instruction,

or

(b_) In the case of a taxpayer in whose name
the book entry by the Reserve Bank is made, in a
list of lot numbers with respect to all book-entry
securities on the books of the Reserve Bank sold
or transferred on that date by the taxpayer, p r o ­
vided such list is mailed to or received by the
Reserve Bank on or before the Reserve B a n k ’s next
business day.
This subdivision shall apply only if the taxpayer
assigns lot numbers in numerical sequence to suc­
cessive purchases of securities of the same loan
title (series) and maturity date, except that
securities of the same loan title (series) and
maturity may be included within the same lot.
(ii)
In applying the provisions of subpara­
graph (3)(i)(b) of this paragraph in the case of
a sale or transfer of a book-entry security which
is made pursuant to a written instruction by the
taxpayer, a confirmation as required by such sub­
paragraph shall be deemed made by-(a)
In the case of a sale or transfer made
after December 31, 1970, the furnishing to the
taxpayer of a written advice of transaction, by
the Reserve Bank or the person through whom the
taxpayer sells or transfers the securities,
which specifies the amount and description of
the securities sold or transferred and the date
of
the transaction, or

(b_)
In the case of a sale or transfer made
before January 1, 1971, the furnishing of a
serially numbered advice of transaction by a
Reserve Bank.

(iii)
(aj

For purposes

of this subparagraph:

The term "book-entry security" means —

(l_)
In the case of a sale or transfer made
after December 31, 1970, a transferable Treasury
bond, note, certificate of indebtedness, or bill
issued under the Second Liberty Bond Act (31 U.S.C.
77U(2) ) , as amended, or other security of the
United States (as defined in (b_) of this subdivi­
sion (iii)) in the form of an entry made as pre­
scribed in 31 CFR Part 306, or other comparable
Federal regulations, on the records of a Reserve
Bank, or
(2_)
In the case of a sale or transfer made
before January 1, 1 9 7 1 9 a transferable Treasury
bond, note, certificate of indebtedness, or bill
issued under the Second Liberty Bond Act, as
amended, in the form of an entry made as prescribed
in 31 CFR Part 306, Subpart 0, on the records of
a Reserve Bank which is deposited in an account
with a Reserve Bank (i_) as collateral pledged to
a Reserve Bank (in its individual capacity) for
advances by it, (ii_) as collateral pledged to
the United States under Treasury Department
Circular No. 92 or 176, both as revised and
amended, (i i i ) by a member bank of the Federal
Reserve System for its sole account for safe­
keeping by a Reserve Bank in its individual capa­
city, (ijv) in lieu of a surety or sureties upon
the bond required by section 6l of the Bankruptcy
Act, as amended (ll U.S.C. 101), of a banking
institution designated by a judge of one of the
several courts of bankruptcy under such section
as a depository for the moneys of a bankrupt's
estate, (v) pursuant to 6 U.S.C. 15 s in lieu of
a surety or sureties required in connection with
any recognizance, stipulation, bond, guaranty,
or undertaking which must be furnished under any
law of the United States or regulations made
pursuant thereto, (vij by a banking institution,
pursuant to a State or local law, to secure the
deposit in such banking institution of public
funds by a State, municipality, or other pol i t i ­
cal subdivision, (v i i ) by a State hank or trust
company or a national bank, pursuant to a State
or local law, to secure the faithful performance

12

of trust or other fiduciary obligations by such.
State bank or trust company or national bunk, or
(v i i i ) to secure funds which are deposited or
held in trust by a State bank or trust company
or a national bank and are awaiting investment,
but which are used by such State bank or trust
company or national bank in the conduct of its
bus i n e s s ;
(b_) The term "other security of the United
States" means a bond, note, certificate of in­
debtedness, bill, debenture, or similar obliga­
tion which is subject to the provisions of 31 CFR
Part 306 or other comparable Federal regulations
and which is issued by
(l_)
any department or agency of the Govern­
ment of the United S t a t e s , or
(2_) the Federal National Mortgage Associ a­
tion, the Federal Home Loan Banks, the Federal
Land Banks, the Federal Intermediate Credit Banks,
the Banks for Cooperatives, or the Tennessee
Valley Authority;
(c_) The term "serially-numbered advice of
transaction" means the confirmation (prescribed
in 31 CFR 306.116) issued by the Reserve Bank
which is identifiable by a unique number and indi­
cates that a particular written instruction to the
Reserve Bank with respect to the deposit or wi t h ­
drawal of a specified book-entry security (or
securities) has been executed; and
(d)
The term "Reserve Bank" means a Federal
Reserve Bank and its branches acting as Fiscal
Agent of the United States.
*

*

*

*

*

13

SECTION 1012.— BASIS OF PROPERTY— COST
26 CFR 1.1012.1:

Basis of property.

Rev.

Rul.

71~2i/Jl

A taxpayer owns as investments Treasury securities and
certain other securities described in the new section
1.1012-1 (c )( 7 )( iii ) (a_) of the Income Tax Regulations.
The tax­
payer owner will assign a lot number to the securities in his
books.
The numbers will be assigned in numerical sequence to
successive purchases of the same loan title (series) and maturity
date, except that securities of the same loan title (series)
and maturity date which are purchased at the same price on the
same date may be included in the same lot.
The owner proposes to retain full interest in the securi­
ties but he will transfer possession of them to a bank.
That
bank will not keep records of the securities by use of the
above-described lot numbers.
The bank will also take possession
of like securities for other taxpayers.
The bank will transfer all of these securities to a bookentry system of a Federal Reserve Bank.
The securities will be
entries in the book-entry account of the bank and, as such, the
securities will no longer exist in definitive form.
That ac­
count will not reflect the fact that the bank holds securities
for several taxpayers.
When the owner wishes to sell certain securities, he will
so instruct the bank in writing.
The owner's instruction will
sufficiently identify the securities to be sold, and will also
refer to the lot number assigned in the books of the owner to
the securities to be sold.
The bank will then instruct, in
writing, the Federal Reserve Bank to transfer the securities.
The latter instruction will not refer to the pertinent lot num­
ber.
The Federal Reserve Bank will confirm the sale to the
bank in the manner it deems appropriate.
The bank will confirm
the sale to the owner by furnishing a written advice of trans­
action specifying the amount and description of the securities
sold and the date of the sale.
The confirmation will not refer
to lot numbers.
When the owner desires to buy additional securities as
investments of the kind described in the new section
1.1012-1 (c ) (7 ) (iii ) (a ) of the regulations, he will order the
.
bank to purchase them.
The bank will instruct the Federal
Reserve Bank to obtain the securities and to put them in the
bank's book-entry account.
The confirmation of the purchase
from the Federal Reserve Bank to the bank and from the bank to
the owner will be of the nature used for the sale of securities.
/l_ Also released as Technical Information Release 1063,
dated December 30, 1970.

I k

The owner will assign lot numbers in the manner described above
to these purchased securities.
H e l d , the above procedure is consistent with the tax
record requirements of new section 1.1012-1(c )(7 ) of the regu­
lations.
This procedure exemplifies the tax record requirements
when securities are transferred by parties to a bank who has an
account in the book-entry system of a Federal Reserve Bank.
The
tax record requirements in the case of a bank who puts its own
investment securities in the book-entry system are set forth in
new section 1.1012-1(c )(7) of the regulations.

SECTION 1+71 — GENERAL RULE FOR INVENTORIES
26 CFR 1.1+71-5:

Inventories by dealers in
securities.
(Also Section 1012; 1.1012-1.)

Rev. R u l . 71-15—

A dealer, as defined in section 1.1+71-5 of the Income Tax
R e g u l a t i o n s , holds Treasury securities and other securities of
the United States.
"Other securities of the United States"
means a transferable bond, note, certificate of indebtedness,
bill, debenture, or similar obligation which is subject to the
provisions of 31 CFR 306 or other comparable Federal regulations
and which is issued by (l) any department or agency of the
Government of the United States, or (2) the Federal National
Mortgage Association, the Federal Home Loan Bank, the Federal
Land Banks, the Federal Intermediate Credit Banks, the Banks for
Cooperatives, or the Tennessee Valley Authority.
The dealer properly holds such securities in inventory in
accordance with section 1.1+71-5 of the Income Tax Regulations.
He proposes to transfer those securities to a book-entry system
maintained by a Federal Reserve Bank.
The dealer will continue
to maintain his books and records for Federal income tax purposes
with respect to such securities in accordance with section
1.1+71-5 of the regulations.
H e l d , the dealer is not subject to the provisions of sec­
tion 1.1012-1 of the regulations relating to identification of
property with respect to such securities.
Such a dealer must,
however, comply with the provisions of section 1.1+71-5 of the
regulations relating to inventory by dealers in securities.

/I Also released as Technical Information Release 106U,
dated January ll+, 1971.
TJ. S. GOVERNMENT PRINTING O F F IC E : 1972 O - 465-439

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