§ 1283. Definitions and special rules

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(a)Definitions For purposes of this subpart—

(1)Short-term obligation

(A)In general Except as provided in subparagraph (B), the term “short-term obligation” means any bond, debenture, note, certificate, or other evidence of indebtedness which has a fixed maturity date not more than 1 year from the date of issue.

(B)Exceptions for tax-exempt obligations The term “short-term obligation” shall not include any tax-exempt obligation (as defined in section 1275(a)(3)).

(2)Acquisition discount The term “acquisition discount” means the excess of—

(A)the stated redemption price at maturity (as defined in section 1273), over

(B)the taxpayer’s basis for the obligation.

(b)Daily portion For purposes of this subpart—

(1)Ratable accrual Except as otherwise provided in this subsection, the daily portion of the acquisition discount is an amount equal to—

(A)the amount of such discount, divided by

(B)the number of days after the day on which the taxpayer acquired the obligation and up to (and including) the day of its maturity.

(2)Election of accrual on basis of constant interest rate (in lieu of ratable accrual)

(A)In general At the election of the taxpayer with respect to any obligation, the daily portion of the acquisition discount for any day is the portion of the acquisition discount accruing on such day determined (under regulations prescribed by the Secretary) on the basis of—

(i)the taxpayer’s yield to maturity based on the taxpayer’s cost of acquiring the obligation, and

(ii)compounding daily.

(B)Election irrevocable An election under subparagraph (A), once made with respect to any obligation, shall be irrevocable.

(c)Special rules for nongovernmental obligations

(1)In general In the case of any short-term obligation which is not a short-term Government obligation (as defined in section 1271(a)(3)(B))—

(A)sections 1281 and 1282 shall be applied by taking into account original issue discount in lieu of acquisition discount, and

(B)appropriate adjustments shall be made in the application of subsection

(b)of this section.

(2)Election to have paragraph

(1)not apply

(A)In general A taxpayer may make an election under this paragraph to have paragraph

(1)not apply to all obligations acquired by the taxpayer on or after the first day of the first taxable year to which such election applies.

(B)Period to which election applies An election under this paragraph 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.

(d)Other special rules

(1)Basis adjustments The basis of any short-term obligation in the hands of the holder thereof shall be increased by the amount included in his gross income pursuant to section 1281.

(2)Double inclusion in income not required Section 1281 shall not require the inclusion of any amount previously includible in gross income.

(3)Coordination with other provisions Section 454(b) and paragraphs

(3)and

(4)of section 1271(a) shall not apply to any short-term obligation to which section 1281 applies.

(Added Pub. L. 98–369, div. A, title I, § 41(a), July 18, 1984, 98 Stat. 549; amended Pub. L. 99–514, title XVIII, § 1803(a)(1)(B), Oct. 22, 1986, 100 Stat. 2792.)

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