In general
Market discount bond
In general
Except as provided in subparagraph (B), the term “market discount bond” means any bond having market discount.
Exceptions
Short-term obligations
Any obligation with a fixed maturity date not exceeding 1 year from the date of issue.
United States savings bonds
Any United States savings bond.
Installment obligations
Any installment obligation to which section 453B applies.
Section 1277 not applicable to tax-exempt obligations
For purposes of section 1277, the term “market discount bond” shall not include any tax-exempt obligation (as defined in section 1275(a)(3)).
Treatment of bonds acquired at original issue
In general
Except as otherwise provided in this subparagraph or in regulations, the term “market discount bond” shall not include any bond acquired by the taxpayer at its original issue.
Treatment of bonds acquired for less than issue price
Bonds acquired in certain reorganizations
Clause (i) shall not apply to any bond issued pursuant to a plan of reorganization (within the meaning of section 368(a)(1)) in exchange for another bond having market discount. Solely for purposes of section 1276, the preceding sentence shall not apply if such other bond was issued on or before (the date of the enactment of section 1276) and if the bond issued pursuant to such plan of reorganization has the same term and the same interest rate as such other bond had.
Treatment of certain transferred basis property
For purposes of clause (i), if the adjusted basis of any bond in the hands of the taxpayer is determined by reference to the adjusted basis of such bond in the hands of a person who acquired such bond at its original issue, such bond shall be treated as acquired by the taxpayer at its original issue.
Market discount
In general
Coordination where bond has original issue discount
In the case of any bond having original issue discount, for purposes of subparagraph (A), the stated redemption price of such bond at maturity shall be treated as equal to its revised issue price.
De minimis rule
If the market discount is less than ¼ of 1 percent of the stated redemption price of the bond at maturity multiplied by the number of complete years to maturity (after the taxpayer acquired the bond), then the market discount shall be considered to be zero.
Bond
The term “bond” means any bond, debenture, note, certificate, or other evidence of indebtedness.
Revised issue price
Original issue discount, etc.
The terms “original issue discount”, “stated redemption price at maturity”, and “issue price” have the respective meanings given such terms by subpart A of this part.
Election to include market discount currently
In general
Scope of election
An election under this subsection shall apply to all market discount bonds acquired by the taxpayer on or after the 1st day of the 1st taxable year to which such election applies.
Period to which election applies
An election under this subsection shall apply to the taxable year for which it is made and for all subsequent taxable years, unless the taxpayer secures the consent of the Secretary to the revocation of such election.
Basis adjustment
The basis of any bond in the hands of the taxpayer shall be increased by the amount included in gross income pursuant to this subsection.
Regulations
The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subpart, including regulations providing proper adjustments in the case of a bond the principal of which may be paid in 2 or more payments.
Pub. L. 98–369, div. A, title I, § 41(a)98 Stat. 547Pub. L. 99–514, title XVIII100 Stat. 2793Pub. L. 100–647, title I102 Stat. 3427Pub. L. 103–66, title XIII, § 13206(b)(2)107 Stat. 465Pub. L. 115–141, div. U, title IV, § 401(a)(181)132 Stat. 1193(Added and amended , title X, § 1001(b)(24), , ; , §§ 1803(a)(6), 1878(a), 1899A(32), , , 2903, 2960; , §§ 1006(u)(2), 1018(c)(2), (3), , , 3578; , , ; , (c)(1)(G), , , 1205.)
Editorial Notes
Amendments
Pub. L. 115–141, § 401(c)(1)(G)2018—Subsec. (a)(4)(B). , struck out “or (b)(4)” after “1272(a)(7)”.
Pub. L. 115–141, § 401(a)(181)Subsec. (b)(1). , substituted “871(a),” for “871(a),,” in concluding provisions.
Pub. L. 103–66, § 13206(b)(2)(A)(i)1993—Subsec. (a)(1)(B)(ii)–(iv). , redesignated cls. (iii) and (iv) as (ii) and (iii), respectively, and struck out heading and text of former cl. (ii). Text read as follows: “Any tax-exempt obligation (as defined in section 1275(a)(3)).”
Pub. L. 103–66, § 13206(b)(2)(A)(ii)Subsec. (a)(1)(C), (D). , (iii), added subpar. (C) and redesignated former subpar. (C) as (D).
Pub. L. 103–66, § 13206(b)(2)(B)(ii)Subsec. (a)(4)(B). , inserted before period at end “or, in the case of a tax-exempt obligation, the aggregate amount of the original issue discount which accrued in the manner provided by section 1272(a) (determined without regard to paragraph (7) thereof) during periods before the acquisition of the bond by the taxpayer”.
Pub. L. 103–66, § 13206(b)(2)(B)(i)Subsec. (b)(1). , substituted “sections 103, 871(a),” for “sections 871(a)” in last sentence.
Pub. L. 100–647, § 1006(u)(2)1988—Subsec. (a)(4)(B). , substituted “section 1272(a)(7)” for “section 1272(a)(6)”.
Pub. L. 100–647, § 1018(c)(3)Subsec. (b)(4). , added par. (4).
Pub. L. 100–647, § 1018(c)(2)Subsec. (c). , inserted before period at end “, including regulations providing proper adjustments in the case of a bond the principal of which may be paid in 2 or more payments”.
Pub. L. 99–514, § 1878(a)Pub. L. 98–369, § 1001(b)Pub. L. 98–3691986—Subsec. (a)(1)(B)(i). , amended , by adding a par. (24), effective as if included in . See 1984 Amendment note below.
Pub. L. 99–514, § 1803(a)(6)Subsec. (a)(1)(C). , added subpar. (C).
Pub. L. 99–514, § 1899A(32)Subsec. (a)(4). , substituted “means” for “means of” in introductory provisions.
Pub. L. 98–369, § 1001(b)(24)Pub. L. 99–514, § 1878(a)1984—Subsec. (a)(1)(B)(i). , as added by , substituted “6 months” for “1 year”, applicable to property acquired after , and before . See Effective Date of 1984 Amendment note below.
Statutory Notes and Related Subsidiaries
Effective Date of 2018 Amendment
section 401(c)(1)(G) of Pub. L. 115–141section 401(c)(1)(H) of Pub. L. 115–141section 163 of this titleAmendment by applicable to debt instruments issued on or after , see , set out as a note under .
Effective Date of 1993 Amendment
Pub. L. 103–66section 1272(d)(1) of this titlesection 13206(b)(3) of Pub. L. 103–66section 1276 of this titleAmendments by applicable to obligations purchased (within the meaning of ) after , see , set out as a note under .
Effective Date of 1988 Amendment
Pub. L. 100–647Pub. L. 99–514section 1019(a) of Pub. L. 100–647section 1 of this titleAmendment by effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, , to which such amendment relates, see , set out as a note under .
Effective Date of 1986 Amendment
Pub. L. 99–514Pub. L. 98–369, div. Asection 1881 of Pub. L. 99–514section 48 of this titleAmendment by sections 1803(a)(6) and 1878(a) of effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, , to which such amendment relates, see , set out as a note under .
Effective Date of 1984 Amendment
Pub. L. 98–369section 1001(e) of Pub. L. 98–369section 166 of this titleAmendment by applicable to property acquired after , and before , see , set out as a note under .
Effective Date
section 44 of Pub. L. 98–369section 1271 of this titleSection applicable to taxable years ending after , except as otherwise provided, see , set out as a note under .
Plan Amendments Not Required Until January 1, 1989
Pub. L. 99–514section 1140 of Pub. L. 99–514section 401 of this titleFor provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after , see , as amended, set out as a note under .