Keys v. Vermont Department of Taxes

The State stipulates that the lump sum payment received by the taxpayer represents income derived from his investment in a retirement fund which invests solely in federal obligations. The prospectus for the retirement plan containing the fund shows that the taxpayer elected to invest in that fund as one of five options and that his selection was made to ensure that, once placed in the fund, the money he invested could only be invested in federal obligations. Interest earned by the taxpayer on that investment must be characterized as income derived from federal obligations and as exempt from…