§ 306.28 - Optional redemption of Treasury bonds at par (before maturity or call redemption date) and application of the proceeds in payment of Federal estate taxes.

(a) General. Treasury bonds to be redeemed at par for the purpose of applying the entire amount of principal and accrued interest to payment of the Federal estate tax on a decedent's estate 5 must be presented and surrendered to a Federal Reserve Bank or Branch or to the Bureau. They should be accompanied by Form PD 1782, fully completed and duly executed in accordance with the instructions on the form, and evidence as described therein. Redemption will be made at par plus accrued interest from the last preceding interest payment date to the date of redemption, except that if registered bonds are received by a Federal Reserve bank or branch or the Bureau within 1 month preceding an interest payment date for redemption before that date, a deduction will be made for interest from the date of redemption to the interest payment date, and a check for the full 6 months’ interest will be paid in due course. The proceeds of redemption will be deposited to the credit of the Internal Revenue Service Center designated in Form PD 1782, and the representative of the estate will be notified of the deposit. A formal receipt may be obtained upon request addressed to the Center.

(b) Conditions. The bonds presented for redemption under this section must have:

(1) Been owned by the decedent at the time of his death and

(2) Thereupon constituted part of his estate, as determined by the following rules in the case of joint ownership, partnership, and trust holdings:

(i) Joint ownerships. Bonds held by the decedent at the time of his death in joint ownership with another person or persons will be deemed to have met the above conditions either:

(A) To the extent to which the bonds actually became the property of the decedent's estate, or

(B) In an amount not to exceed the amount of the Federal estate tax which the surviving joint owner or owners is required to pay on account of such bonds and other jointly held property.6

(ii) Partnerships. Bonds held at the time of the decedent's death by a partnership in which he had an interest will be deemed to have met the above conditions to the extent of his fractional share of the bonds so held proportionate to his interest in the assets of the partnership.

(iii) Trusts. Bonds held in trust at the time of the decedent's death will be deemed to have met the above conditions in an amount not to exceed the amount of the Federal estate tax:

(A) If the trust actually terminated in favor of the decedent's estate, or

(B) If the trustee is required to pay the decedent's Federal estate tax under the terms of the trust instrument or otherwise, or

(C) To the extent the debts of the decedent's estate, including costs of administration, State inheritance and Federal estate taxes, exceed the assets of his estate without regard to the trust estate.

(c) Transactions after owner's death. No transactions involving changes of ownership may be conducted after an owner's death without affecting the eligibility of the bonds for redemption at par for application of the proceeds to payment of the Federal estate tax. Transactions involving no changes of ownership which may be conducted without affecting eligibility are:

(1) Exchange of bonds for those of lower denominations where the bonds exceed the amount of the tax and are not in the lowest authorized denominations,

(2) Exchange of registered bonds for coupon bonds,

(3) Exchange of coupon bonds for bonds registered in the names of the representatives of the estate,

(4) Transfer of bonds from the owner or his nominee to the names of the representatives of the owner's estate, and

(5) Purchases by or for the account of any owner prior to his death, held in book-entry form, and thereafter converted to definitive bonds.

However, any such transactions must be explained on Form PD 1782 or in a supplemental statement.