[Code of Federal Regulations]
[Title 31, Volume 2]
[Revised as of July 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 31CFR316.9]

[Page 195]
 
                  TITLE 31--MONEY AND FINANCE: TREASURY
 
         CHAPTER II--FISCAL SERVICE, DEPARTMENT OF THE TREASURY
 
PART 316--OFFERING OF UNITED STATES SAVINGS BONDS, SERIES E--Table of Contents
 
Sec. 316.9  Taxation.

    (a) General. For the purpose of determining taxes and tax 
exemptions, the increment in value represented by the difference between 
the price paid for Series E bonds and the redemption value received 
therefor constitutes interest. Such interest is subject to all taxes 
imposed under the Internal Revenue Code of 1986, as amended. The bonds 
are subject to estate, inheritance, gift, or other excise taxes, whether 
Federal or State, but are exempt from all other taxation now or 
hereafter imposed on the principal or interest thereof by any State, or 
any of the possesions of the United States, or by any local taxing 
authority.
    (b) Federal income tax on bonds. An owner of Series E bonds who is a 
cash-basis taxpayer may use either of the following two methods of 
reporting the increase in the redemption value of the bonds for Federal 
income tax purposes:
    (1) Defer reporting the increase to the year of final maturity, 
actual redemption, or other disposition, whichever is earlier; or
    (2) Elect to report the increases each year as they accrue, in which 
case the election applies to all Series E bonds then owned and those 
subsequently acquired, as well as to any other similar obligations 
purchased on a discount basis. If the method in paragraph (b)(1) of this 
section is used, the taxpayer may change to the method in paragraph 
(b)(2) of this section without obtaining permission from the Internal 
Revenue Service. However, once the election to use the method in 
paragraph (b)(2) of this section is made, the taxpayer may not change 
the method of reporting without permission from the Internal Revenue 
Service. For further information on Federal income taxes, the Service 
Center Director, or District Director, Internal Revenue Service, of the 
taxpayer's district may be contacted.