Sec. 3412. Treatment of certain exchanges of debt instruments

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Subpart A of part V of subchapter P is amended by inserting after section 1274A the following new section: In the case of an exchange (including by significant modification) by an issuer of a new debt instrument for an existing debt instrument issued by the same issuer, the issue price of the new debt instrument shall be the least of— the adjusted issue price of the existing debt instrument, the stated principal amount of the new debt instrument, or the imputed principal amount of the new debt instrument.

The discount rate used to determine the imputed principal amount of the new debt instrument under subsection (a)(3) shall be the lesser of— the applicable Federal rate determined under section 1274(d) with respect to the new debt instrument, or the greater of— the rate of qualified stated interest with respect to the existing debt instrument, or the applicable Federal rate determined under section 1274(d) with respect to the existing debt instrument. Rules similar to the rules of section 1273(c)(2) shall apply for purposes of this section. .

Section 108(e)(10)(B) is amended by striking and 1274 and inserting , 1274, and 1274B . Section 1274(c)(3), as amended by the preceding provisions of this Act, is amended by adding at the end the following new subparagraph: Any debt instrument the issue price of which is determined under section 1274B. . The table of sections for subpart A of part V of subchapter P is amended by inserting after the item relating to section 1274A the following new item: Sec. 1274B. Determination of issue price in the case of an exchange of debt instruments. .

Section 1037 is amended to read as follows: No gain or loss shall be recognized to the holder of a debt instrument if such existing debt instrument is exchanged solely for a new debt instrument (whether by exchange or significant modification) issued by the same issuer. Subsection

(a)shall not apply to the extent that any property received is attributable to interest which accrued on the existing debt instrument on or after the beginning of the holder’s holding period of such instrument. In the case of an exchange of a debt instrument to which section 1035(d) applies, the amount of gain recognized shall not exceed the amount of gain which would have been recognized if section 1274B did not apply. For rules relating to securities exchanged or distributed in a reorganization, etc., see sections 354, 355, and 356. For rules relating to recognition of gain or loss where exchange was not made solely for another debt instrument of the issuer, see subsections

(d)and

(e)of section 1035. For rules relating to basis of obligations acquired in an exchange described in subsection (a), see subsection

(f)of section 1035. . The table of sections for part III of subchapter O of chapter 1 is amended by striking the item relating to section 1037 and inserting the following new item: Sec. 1037. Certain exchanges of debt instruments. . Section 354(a)(2)(A)(i) is amended to read as follows: the issue price of any such securities received exceeds the adjusted issue price of any such securities surrendered, or . Section 354(a)(2) is amended by inserting after subparagraph

(C)the following new subparagraph: For purposes of this paragraph— The issue price of any security shall be determined under sections 1273, 1274, and 1274B. The adjusted issue price of any security shall be determined under section 1275(a)(5). . Section 355(a)(3)(A)(i) is amended to read as follows: the issue price (as defined in section 354(a)(2)(D)) of the securities in the controlled corporation which are received exceeds the adjusted issue price (as so defined) of the securities which are surrendered in connection with such distribution, or . Section 356(d)(2)(B)(ii) is amended to read as follows: the issue price (as defined in section 354(a)(2)(D)) of such securities received exceeds the adjusted issue price (as so defined) of such securities surrendered, . Section 356(d)(2)(B) is amended in the matter following clause (ii)— by striking “the fair market value of such excess” and inserting “the amount of such excess”, and by striking “the entire principal amount” and inserting “the entire issue price (as so defined)”. Section 356(d)(2)(C) is amended to read as follows: If, in an exchange or distribution described in section 355, the issue price (as defined in section 354(a)(2)(D)) of the securities in the controlled corporation which are received exceeds the adjusted issue price (as so defined) of the securities in the distributing corporation which are surrendered, then, with respect to such securities received, the term other property means only the amount of such excess. . The amendments made by this section shall apply to transactions after December 31, 2014.