26 USC 1278 - Definitions and special rules

View all text of Subpart B [§ 1276 - § 1278]

§ 1278. Definitions and special rules

(a) In general

For purposes of this part—

(1) Market discount bond

(A) In general

(B) Exceptions

The term “market discount bond” shall not include—

(i) Short-term obligations

(ii) United States savings bonds

(iii) Installment obligations

(D) Treatment of bonds acquired at original issue

(i) In general

(ii) Treatment of bonds acquired for less than issue price

Clause (i) shall not apply to any bond if—

(I) the basis of the taxpayer in such bond is determined under section 1012, and(II) such basis is less than the issue price of such bond determined under subpart A of this part.

(iii) Bonds acquired in certain reorganizations

(iv) Treatment of certain transferred basis property

(2) Market discount

(A) In general

The term “market discount” means the excess (if any) of—

(i) the stated redemption price of the bond at maturity, over

(ii) the basis of such bond immediately after its acquisition by the taxpayer.

(B) Coordination where bond has original issue discount

(3) Bond

(4) Revised issue price

The term “revised issue price” means the sum of—

(A) the issue price of the bond, and

(B) the aggregate amount of the original issue discount includible in the gross income of all holders for periods before the acquisition of the bond by the taxpayer (determined without regard to section 1272(a)(7)) 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.

(5) Original issue discount, etc.

(b) Election to include market discount currently

(1) In general

If the taxpayer makes an election under this subsection—

(A) sections 1276 and 1277 shall not apply, and

(B) market discount on any market discount bond shall be included in the gross income of the taxpayer for the taxable years to which it is attributable (as determined under the rules of subsection (b) of section 1276).

Except for purposes of sections 103, 871(a), 881, 1441, 1442, and 6049 (and such other provisions as may be specified in regulations), any amount included in gross income under subparagraph (B) shall be treated as interest for purposes of this title.

(2) Scope of election

(3) Period to which election applies

(4) Basis adjustment

(Added and amended Pub. L. 98–369, div. A, title I, § 41(a), title X, § 1001(b)(24), July 18, 1984, 98 Stat. 547; Pub. L. 99–514, title XVIII, §§ 1803(a)(6), 1878(a), 1899A(32), Oct. 22, 1986, 100 Stat. 2793, 2903, 2960; Pub. L. 100–647, title I, §§ 1006(u)(2), 1018(c)(2), (3), Nov. 10, 1988, 102 Stat. 3427, 3578; Pub. L. 103–66, title XIII, § 13206(b)(2), Aug. 10, 1993, 107 Stat. 465; Pub. L. 115–141, div. U, title IV, § 401(a)(181), (c)(1)(G), Mar. 23, 2018, 132 Stat. 1193, 1205.)