January 19, 1978

In your letter of December 7, 1977, hereby incorporated by reference, you request a ruling as to the taxability of income on "bank repurchase agreements".

You enclose copies of so-called "bank repurchase agreements" by which the bank purports to sell U.S. Treasury Notes to a customer with the proviso that the bank will repurchase the U.S. Treasury Notes on a specified date and pay interest to the customer. In each example the interest bears no relation to the interest payable on the U.S. Treasury Notes. The U.S. Treasury Notes are at all times in the possession of the bank.

A repurchase agreement marked "Copy for Money Market" indicates that "$50,000 - U.S. Treas. Notes, 8%, due 2-28-78" have been pledged as security for an agreement whereby the bank agrees to pay interest at the rate of 5.65% for 91 days on a principal amount of $50,000.

It would appear that the true nature of the transaction is as indicated on the repurchase agreement marked "Copy for Money Market". The bank is paying interest at the rate of 5.65% on a deposit of $50,000. The U.S. Treasury Notes are purported to be pledged as security for the deposit.

Based on the foregoing, it is ruled that interest paid on "bank repurchase agreements" constitutes interest on a deposit and is includible in Massachusetts Part B income.

Very truly yours,

/s/Laurence D. Fitzmaurice

Laurence D. Fitzmaurice
Commissioner of Corporations
and Taxation

LR 78-2