An Act to permit the issuance of series E and H U.S. savings bonds at interest rates above the existing maximum, to permit the Secretary of the Treasury to designate certain exchange of Government securities to be made without recognition of gain or loss, and for other purposes
PL 86-346 (H.R.9035), enacted 09/22/1959

73 
S T A T . ] 
PUBLIC LAW 86-346-SEPT. 22, 1959 
621 
Public Law 86-346 
AN ACT 
To permit the issuance of series E and H TJnited States savings bonds at interest 
rates above the existing maximum, to permit the Secretary of the Treasury 
to designate certain exchanges of Government securities to be made without 
recognition of gain or loss, and for other purposes. 
Be it enacted hy the Senate and Hou^e of Rei>resentatives of the 
United States of America in Congress assembled^ 
September 22, 1959 
[H. R. 9035] 
TITLE I—IN GENERAL 
SEC. 101. (a) The Second Liberty Bond Act, as amended, is 
amended by adding at the end thereof the following new section: 
"SEC. 25. In the case of any offering of United States savings bonds 
issued or to be issued under section 22 of this Act, the maximum limits 
on the interest rate or the investment yield or both may be exceeded 
upon a finding by the President with respect to such offering that the 
national interest requires that such maximum limits be exceeded: Pro-
vided^ howe^ver^ That in no event may the interest rate or the invest-
ment yield exceed 4 ^ per centum per annum." 
(b) Paragraph (2) of section 22(b) of the Second Liberty Bond 
Act, as amended (31 U.S.C, sec. 75Tc(b) (2)), is amended to read as 
follows: 
" (2) The Secretary of the Treasury, wdth the approval of the Presi-
dent, is authorized to provide by regulations: 
"(A) That owners of series E and H savings bonds may, at 
their option, retain the bonds after maturity, or after any period 
beyond maturity during which such bonds have earned interest, 
and continue to earn interest upon them at rates which (subject 
to section 25) are consistent with the provisions of paragraph (1). 
"(B) That series E and H savings bonds on which the rates 
of interest have been fixed prior to such regulations will earn 
interest at higher rates which (subject to section 25) are con-
sistent with the provisions of paragraph (1)." 
(c) The authority granted by the amendments made by subsections 
(a) and (b) may be exercised with respect to United States savings 
bonds bearing issue dates of June 1, 1959, or thereafter. 
Such 
authority may also be exercised with respect to United States savings 
bonds issued before June 1, 1959, but in no case shall the interest rate, 
or investment yield, on any bond be changed pursuant to such 
authority for any period which begins before June Ij 1959. 
SEC. 102. The heading and fii-st sentence of section 454(c) of the 
Internal Revenue Code of 1954 (relating to matured United States 
savings bonds) are amended to read as follows: 
"(c) MATURED UNITED STATES SAVINGS BONDS.—In the case of a 
taxpayer who— 
"(1) holds a series E United States savings bond at the date 
of maturity, and 
"(2) pursuant to regulations prescribed under the Second 
Liberty Bond Act (A) retains his investment in such series E 
bond in an obligation of the United States, other than a current 
income obligation, or (B) exchanges such series E bond for 
another nontransferable obligation of the United States in an 
exchange upon which gain or loss is not recognized because of 
section 1037 (or so much of section 1031 as relates to section 
1037), 
the increase in redemption value (to the extent not previously includ-
ible in gross income) in excess of the amount paid for such series E 
u. 
I n 
S. 
s a v i n g s 
Is. 
t e r e s t rates 
increase. 
40 Stat. 
31 use 
288. 
774(2). 
65 Stat. 26. 
Retention of ma-
tured bon<ls. 
68A Stat. 156. 
31 u s e 774(2). 
Post, p. 623. 
68A Stat. 302. 
622 
PUBLIC LAW 86-346-8EPT. 22, 1969 
[73 ST A T . 
Paying agents. 
Relief from lia-
bility. 
57 Stat. 63. 
53 Stat. 1226. 
70 Stat. 397. 
23 u s e 120 note. 
Tax exemption. 
Repeals. 
46 Stat. 19, 775. 
40 
1309. Stat. 291, 
55 Stat. 7. 
68A Stat. 302. 
26 u s e 
1031-
1036. 
bond shall be includible in gross income in the taxable year in which 
the obligation is finally redeemed or in the taxable year of final 
maturity, whichever is earlier." 
SEC. 103. Subsection (i) of section 22 of the Second Liberty Bond 
Act, as amended (31 U.S.C, sec. 757c(i)), is amended by inserting 
after the third sentence thereof the following: "Relief from liability 
shall be granted in all cases where the Secretary of the Treasury shall 
determine, under regulations prescribed by him, that written notice of 
liability or potential liability has not been given by the United States, 
within ten years from the date of the erroneous payment, to any of 
the foregoing agents or agencies whose liability is to be determined: 
Provided, That no relief shall be granted in any case in which a 
qualified paying agent has assumed unconditional liability to the 
United States." 
SEC. 104. The following provisions of law are amended by striking 
out the words "on original issue at par" and inserting in lieu thereof 
the words "on original issue at the issue price": 
(1) Section 6(g) (5) of the Act of March 24, 1934, as amended 
(22 U.S.C, sec. 1393 (g) (5)), relating to the trust account for 
the payment of pre-1934 bonds of the Government of the 
Philippines. 
(2) Section 201(d) of the Social Security Act (42 U.S.C, sec. 
401(d)), relating to the Federal Old-Age and Survivors Insur-
ance Trust Fund and the Federal Disability Insurance Trust 
Fund. 
(3) Section 904(b) of the Social Security Act (42 U.S.C, sec. 
1104(b)), relating to the Unemployment Trust Fund. 
(4) Section 15(b) of the Railroad Retirement Act of 1937 (45 
U.S.C, sec. 228o(b)), relating to the Railroad Retirement 
Account. 
(5) Section 209(e)(2) of the Highway Revenue Act of 1956 
(23 U.S.C, sec. 173(e) (2)), relating to the Highway Trust Fund. 
SEC. 105. (a) Section 3701 of the Revised Statutes (31 U.S.C, sec. 
742) is amended by adding at the end thereof the following: "This 
exemption extends to every form of taxation that would require that 
either the obligations or the interest thereon, or both, be considered, 
directly or indirectly, in the computation of the tax, except nondis-
criminatory franchise or other nonproperty taxes in lieu thereof 
imposed on corporations and except estate taxes or inheritance taxes." 
(b) The following provisions of the Second Liberty Bond Act, as 
amended, relating to the tax-exempt status of obligations of the United 
States, are repealed, without changing the status of any outstanding 
obligation: 
(1) Subsections (b) and (d) of section 5 (31 U.S.C, sec. 754 
(b) and ( d ) ) ; 
(2) The second and third sentences of section 7 (31 U.S.C, sec. 
747); 
(3) Subsection (b) of section 18 (31 U.S.C, sec. 753(b)); 
(4) The first sentence of subsection (d) of section 22 (31 U.S.C, 
sec.75rc(d)). 
TITLE II—INCOME TAX TREATMENT OF CERTAIN EX-
CHANGES OF UNITED STATES OBLIGATIONS 
SEC. 201. (a) Part I I I of subchapter O of chapter 1 of the Internal 
Revenue Code of 1954 (relating to common nontaxable exchanges) is 
amended by adding at the end thereof the following new section: 
31 use 774(2). 
73 S T A T . ] 
PUBLIC LAW 86-34e-SEPT. 22, 1969 
«23 
"SEC. 1037. CERTAIN EXCHANGES OF UNITED STATES OBLIGATIONS. 
"(a) GENERAL RULE.—^When so provided by regulations promul-
gated by the Secretary in connection with the issue of obligations of 
the United States, no gain or loss shall be recognized on the sur-
render to the United States of obligations of the United States issued 
under the Second Liberty Bond Act in exchange solely for other obli- 
^o stat. 288. 
gations issued under such Act. 
"(b) APPLICATION OF SECTION 1232.— 
"(1) 
EXCHANGES INVOLVING OBLIGATIONS ISSUED AT A DIS-
COUNT.—In any case in which gain has been realized but not 
recognized because of the provisions of subsection (a) (or so 
much of section 1031(b) as relates to subsection (a) of this sec-
tion), to the extent such gain is later recognized by reason of a 
disposition or redemption of an obligation received in an ex-
change subject to such provisions, the first sentence of section 
1232(a) (2) (A) shall apply to such gain as though the obligation 
disposed of or redeemed were the obligation surrendered to the 
Government in the exchange rather than the obligation actually 
disposed of or redeemed. For purposes of this paragraph and 
section 1232, if the obligation surrendered in the exchange is 
a nontransferable obligation described in subsection (a) or (c) 
of section 454— 
"(A) the aggregate amount considered, with respect to the 
obligation surrendered, as gain from the sale or exchange of 
property which is not a capital asset shall not exceed the 
difference between the issue price and the stated redemption 
price which applies at the time of the exchange, and 
"(B) the issue price of the obligation received in the ex-
change shall be considered to be the stated redemption price 
of the obligation surrendered in the exchange, increased by 
the amount of other consideration (if any) paid to the 
United States as a part of the exchange. 
"(2) 
EXCHANGES OF TRANSFERABLE OBLIGATIONS ISSUED AT NOT 
LESS THAN PAR.—In any case in which subsection (a) (or so much 
of section 1031 (b) or (c) as relates to subsection (a) of this 
section) has applied to the exchange of a transferable obligation 
which was issued at not less than par for another transferable 
obligation, the issue price of the obligation received fix>m the 
Government in the exchange shall be considered for purposes of 
api)lying section 1232 to be the same as the issue price of the 
obligation surrendered to the Government in the exchange, 
increased by the amount of other consideration (if any) paid 
to the United States as a part of the exchange. 
"(c) CROSS EEFERENCES.— 
"(1) For rules relating to the recognition of gain or loss in a case 
where subsection (a) would apply except for the fact that the 
exchange was not made solely for other obligations of the United 
States, see subsections (b) and (c) of section 1031. 
"(2) For rules relating to the basis of obligations of the United 
States acquired in an exchange for other obligations described in 
subsection (a), see subsection (d) of section 1031." 
(b) The table of sections for part I I I of subchapter 0 of chapter 1 
of the Internal Eevenue Code of 1954 is amended by adding at the 
end thereof the following: 
"Sec 10S7. Certain exchanges of United States obligations." 
624 
PUBLIC LAW 86-347-SEPT. 22, 1959 
[73 ST A T . 
68A Stat. 302. 
68A Stat. 302. 
72 Stat. 1641. 
61 Stat. 180. 
Effective date. 
(c) Section 1031(b) of such Code (relating to gain from exchanges 
of property not solely in kind) is amended by striking out "the pro-
visions of subsection (a), of section 1035(a), or of section 1036(a)," 
and inserting in lieu thereof "the provisions of subsection (a), of 
section 1035(a), of section 1036(a), or of section 1037(a),". 
(d) Section 1031(c) of such Code (relating to loss from exchanges 
of property not solely in kind) is amended by striking out "the pro-
visions of subsection (a), of section 1035(a), or of section 1036(a)," 
and inserting in lieu thereof "the provisions of subsection (a), of sec-
tion 1035(a), of section 1036(a), or of section 1037(a),". 
(e) Section 1031(d) of such Code (relating to basis in the case of 
exchanges of property held for productive use or investment) is 
amended by striking out "this section, section 1035(a), or section 
1036(a)," each place it appears in the first and second sentences 
thereof and inserting in lieu thereof "this section, section 1035(a), 
section 1036(a), or section 1037(a),". 
SEC. 202. Section 4(a) of the Public I)ebt Act of 1941, as amended 
(31 U.S.C., sec. 742a), is amended by striking out "under the Internal 
Revenue Code, or laws amendatory or supplementary thereto" and 
inserting in lieu thereof "except as provided under the Internal 
Revenue Code of 1954". 
SEC. 203. Tlie amendments made by this title shall be effective for 
taxable years ending after the date of enactment of this Act. 
Approved September 22, 1959. 
September 22, 1959 
[S. 1473] 
Public Law 86-347 
AN ACT 
To repeal the Act of May 27, 1912, which authorized and directed the Secretary 
of the Treasury to sell certain land to the First Baptist Church of Plymouth, 
Massachusetts. 
Be it enacted hy the Senate and House of Representatives 
of the 
United States of America in Congress assembled, That the Act of 
May 27, 1912 (37 Stat. 117, ch. 134) is hereby repealed. 
Approved September 22, 1959. 
Public Law 86-348 
September 22, 1959 
[S. 2362] 
AN ACT 
To authorize the Secretary of the Army to convey to the city of Arlington, 
Oregon, certain lands at the John Day lock and dam project. 
Be it enacted by the /Senate and House of Representatives 
of the 
c^n(^ya^ce°'^**'* United States of America in Congress assembled. That whenever the 
Secretary of the Army determines that any land within the corporate 
limits of the city of Arlington, Oregon, acquired for construction of 
the John Day lock and dam as authorized by the River and Harbor 
Act of May 17, 1950 (64 Stat. 163, 167), is no longer required for 
project purposes, he is authorized and directed, subject to the further 
provisions of this Act, to convey to the city of Arlington all right, 
title, and interest of the United States therein.