Rev. Rul. 70-467

Advice has been requested whether, under the circumstances described below, income in respect of a decedent qualifies as averageable income for purposes of sections 1301 through 1305 of the Internal Revenue Code of 1954.

A, the husband of B, purchased savings bonds with his separate funds and had them registered in his name and that of his wife as co-owners. B cashed the bonds after A's death and received the interest income that had accrued on the bonds. The interest received was includible in the gross income of B under section 691 of the Code as income in respect of a decedent.

Section 1302(a) of the Code (prior to its amendment by the Tax Reform Act of 1969, P.L. 91-172, C.B. 1969-3, 10, 67) states that the term "averageable income" means the amount (if any) by which adjusted taxable income exceeds 1331/3 percent of average base period income.

Section 1.1302-2(c)(1)(i) of the Income Tax Regulations provides, in part, that in determining adjusted taxable income, taxable income for the computation year is decreased by the amount of net income attributable to an interest in property where such interest was received by the taxpayer as a gift, bequest, devise, or inheritance during the taxable year.

However, section 691(a)3 of the Code provides that the right to receive an amount of income in respect of a decedent shall be treated in the hands of the estate, or by the person entitled to receive such amount by bequest, devise, or inheritance from the decedent or by reason of his death, as if it had been acquired in the transaction by which the decedent acquired such right, and shall be considered as having the same character it would have had if the decedent had lived and received such amount.

In the instant case the character of the interest income in B's hands is the same as it would have been in the hands of the decedent, A, if he had lived and received such income.

Accordingly, it is held that the interest income from the savings bonds qualifies as averageable income for purposes of sections 1301 through 1305 of the Code.