[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: 31CFR351.8]

[Page 302]
 
                  TITLE 31--MONEY AND FINANCE: TREASURY
 
         CHAPTER II--FISCAL SERVICE, DEPARTMENT OF THE TREASURY
 
PART 351--OFFERING OF UNITED STATES SAVINGS BONDS, SERIES EE--Table of Contents
 
Sec. 351.8  Taxation.

    (a) General. The increment in value, represented by the difference 
between the issue price of a Series EE bond and the redemption value 
received for it, is interest. This interest is subject to all taxes 
imposed under the Internal Revenue Code of 1954, 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 by any State, any 
possession of the United States or any local taxing authority.
    (b) Federal income tax on bonds. An owner of Series EE bonds may use 
either of the following two methods for reporting the increase in the 
redemption value of the bond for Federal income tax purposes:
    (1) Cash basis. Defer reporting the increase to the year of 
maturity, redemption, or other disposition, whichever is earlier; or
    (2) Accrua1 basis. Elect to report the increase each year as it 
accrues, in which case the election applies to all Series EE bonds then 
owned by the taxpayer and those subsequently acquired as well as to any 
other obligations purchased on a discount basis, such as savings bonds 
of Series E.
    (3) 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 unless he 
or she obtains permission from the Internal Revenue Service. For further 
information, the District Director of the taxpayer's district, or the 
Internal Revenue Service, Washington, DC 20224, should be consulted.
    (c) Tax-deferred exchanges. Department of the Treasury Circular, 
Public Debt Series No. 2-80 (31 CFR part 352), authorizes the exchange 
of Series EE bonds for Series HH bonds, with a continuation of the tax-
deferral privilege. The rules governing tax-deferred exchanges are 
contained in that circular.
    (d) Reissue. A reissue that affects the rights of any of the persons 
named on a Series EE bond may have a tax consequence.