26 U.S.C. § 1272
Current inclusion in income of original issue discount
# (a) Original issue discount included in income on basis of constant interest rate
(1) General rule For purposes of this title, there shall be included in the gross income of the holder of any debt instrument having original issue discount, an amount equal to the sum of the daily portions of the original issue discount for each day during the taxable year on which such holder held such debt instrument.
(2) Exceptions Paragraph (1) shall not apply to— (A) Tax-exempt obligations Any tax-exempt obligation.
(B) United States savings bonds Any United States savings bond.
(C) Short-term obligations Any debt instrument which has a fixed maturity date not more than 1 year from the date of issue.
(D) Loans between natural persons (i) In general Any loan made by a natural person to another natural person if— (I) such loan is not made in the course of a trade or business of the lender, and (II) the amount of such loan (when increased by the outstanding amount of prior loans by such natural person to such other natural person) does not exceed $10,000. (ii) Clause (i) not to apply where tax avoidance a principal purpose Clause (i) shall not apply if the loan has as 1 of its principal purposes the avoidance of any Federal tax. (iii) Treatment of husband and wife For purposes of this subparagraph, a husband and wife shall be treated as 1 person. The preceding sentence shall not apply where the spouses lived apart at all times during the taxable year in which the loan is made.
(3) Determination of daily portions For purposes of paragraph (1), the daily portion of the original issue discount on any debt instrument shall be determined by allocating to each day in any accrual period its ratable portion of the increase during such accrual period in the adjusted issue price of the debt instrument. For purposes of the preceding sentence, the increase in the adjusted issue price for any accrual period shall be an amount equal to the excess (if any) of— (A) the product of— (i) the adjusted issue price of the debt instrument at the beginning of such accrual period, and (ii) the yield to maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period), over (B) the sum of the amounts payable as interest on such debt instrument during such accrual period.
(4) Adjusted issue price For purposes of this subsection, the adjusted issue price of any debt instrument at the beginning of any accrual period is the sum of— (A) the issue price of such debt instrument, plus (B) the adjustments under this subsection to such issue price for all periods before the first day of such accrual period.
(5) Accrual period Except as otherwise provided in regulations prescribed by the Secretary, the term “accrual period” means a 6-month period (or shorter period from the date of original issue of the debt instrument) which ends on a day in the calendar year corresponding to the maturity date of the debt instrument or the date 6 months before such maturity date.
(6) Determination of daily portions where principal subject to acceleration (A) In general In the case of any debt instrument to which this paragraph applies, the daily portion of the original issue discount shall be determined by allocating to each day in any accrual period its ratable portion of the excess (if any) of— (i) the sum of (I) the present value determined under subparagraph (B) of all remaining payments under the debt instrument as of the close of such period, and (II) the payments during the accrual period of amounts included in the stated redemption price of the debt instrument, over (ii) the adjusted issue price of such debt instrument at the beginning of such period. (B) Determination of present value For purposes of subparagraph (A), the present value shall be determined on the basis of— (i) the original yield to maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period), (ii) events which have occurred before the close of the accrual period, and (iii) a prepayment assumption determined in the manner prescribed by regulations. (C) Debt instruments to which paragraph applies This paragraph applies to— (i) any regular interest in a REMIC or qualified mortgage held by a REMIC, (ii) any other debt instrument if payments under such debt instrument may be accelerated by reason of prepayments of other obligations securing such debt instrument (or, to the extent provided in regulations, by reason of other events), or (iii) any pool of debt instruments the yield on which may be affected by reason of prepayments (or to the extent provided in regulations, by reason of other events). To the extent provided in regulations prescribed by the Secretary, in the case of a small business engaged in the trade or business of selling tangible personal property at retail, clause (iii) shall not apply to debt instruments incurred in the ordinary course of such trade or business while held by such business.
(7) Reduction where subsequent holder pays acquisition premium (A) Reduction For purposes of this subsection, in the case of any purchase after its original issue of a debt instrument to which this subsection applies, the daily portion for any day shall be reduced by an amount equal to the amount which would be the daily portion for such day (without regard to this paragraph) multiplied by the fraction determined under subparagraph (B). (B) Determination of fraction For purposes of subparagraph (A), the fraction determined under this subparagraph is a fraction— (i) the numerator of which is the excess (if any) of— (I) the cost of such debt instrument incurred by the purchaser, over (II) the issue price of such debt instrument, increased by the portion of original issue discount previously includible in the gross income of any holder (computed without regard to this paragraph), and (ii) the denominator of which is the sum of the daily portions for such debt instrument for all days after the date of such purchase and ending on the stated maturity date (computed without regard to this paragraph).
# (b) Exceptions
This section shall not apply to any holder— (1) who has purchased the debt instrument at a premium, or (2) which is a life insurance company to which section 811(b) applies.
# (c) Definition and special rule
(1) Purchase defined For purposes of this section, the term “purchase” means— (A) any acquisition of a debt instrument, where (B) the basis of the debt instrument is not determined in whole or in part by reference to the adjusted basis of such debt instrument in the hands of the person from whom acquired. (2) Basis adjustment The basis of any debt instrument in the hands of the holder thereof shall be increased by the amount included in his gross income pursuant to this section.
Source: view the official text
Cited by 51
- 26 CFR § 1.108(i)-3 — Rules for the deduction of OID.
- 26 CFR § 1.108-2 — Acquisition of indebtedness by a person related to the debtor.
- 26 CFR § 1.1271-1 — Special rules applicable to amounts received on retirement, sale, or exchange of debt instruments.
- 26 CFR § 1.1272-1 — Current inclusion of OID in income.
- 26 CFR § 1.1272-2 — Treatment of debt instruments purchased at a premium.
- 26 CFR § 1.1272-3 — Election by a holder to treat all interest on a debt instrument as OID.
- 26 CFR § 1.1274-2 — Issue price of debt instruments to which section 1274 applies.
- 26 CFR § 1.1274A-1 — Special rules for certain transactions where stated principal amount does not exceed $2,800,000.
- 26 CFR § 1.1275-1 — Definitions.
- 26 CFR § 1.1275-2 — Special rules relating to debt instruments.
- 26 CFR § 1.1275-3 — OID information reporting requirements.
- 26 CFR § 1.1275-4 — Contingent payment debt instruments.
Show 39 more
- 26 CFR § 1.1275-6 — Integration of qualifying debt instruments.
- 26 CFR § 1.1275-7 — Inflation-indexed debt instruments.
- 26 CFR § 1.1502-13 — Intercompany transactions.
- 26 CFR § 1.163-13 — Treatment of bond issuance premium.
- 26 CFR § 1.163-7 — Deduction for OID on certain debt instruments.
- 26 CFR § 1.171-1 — Bond premium.
- 26 CFR § 1.221-1 — Deduction for interest paid on qualified education loans after December 31, 2001.
- 26 CFR § 1.305-3 — Disproportionate distributions.
- 26 CFR § 1.305-5 — Distributions on preferred stock.
- 26 CFR § 1.446-2 — Method of accounting for interest.
- 26 CFR § 1.6045-1 — Returns of information of brokers and barter exchanges.
- 26 CFR § 1.6049-10 — Reporting of original issue discount on a tax-exempt obligation.
- 26 CFR § 1.6049-7 — Returns of information with respect to REMIC regular interests and collateralized debt obligations.
- 26 CFR § 1.671-5 — Reporting for widely held fixed investment trusts.
- 26 CFR § 1.707-3 — Disguised sales of property to partnership; general rules.
- 26 CFR § 1.860D-1 — Definition of a REMIC.
- 26 CFR § 1.860E-1 — Treatment of taxable income of a residual interest holder in excess of daily accruals.
- 26 CFR § 1.860E-2 — Tax on transfers of residual interests to certain organizations.
- 26 CFR § 1.860G-1 — Definition of regular and residual interests.
- 26 CFR § 1.860G-2 — Other rules.
- 26 CFR § 1.860G-3 — Treatment of foreign persons.
- 26 CFR § 1.965-7 — Elections, payment, and other special rules.
- 26 CFR § 1.988-2 — Recognition and computation of exchange gain or loss.
- 26 CFR § 1.988-5 — Section 988(d) hedging transactions.
- 26 U.S.C. § 1271 — Treatment of amounts received on retirement or sale or exchange of debt instruments
- 26 U.S.C. § 1275 — Other definitions and special rules
- 26 U.S.C. § 1276 — Disposition gain representing accrued market discount treated as ordinary income
- 26 U.S.C. § 1278 — Definitions and special rules
- 26 U.S.C. § 1286 — Tax treatment of stripped bonds
- 26 U.S.C. § 1288 — Treatment of original issue discount on tax-exempt obligations
- 26 U.S.C. § 163 — Interest
- 26 U.S.C. § 171 — Amortizable bond premium
- 26 U.S.C. § 305 — Distributions of stock and stock rights
- 26 U.S.C. § 483 — Interest on certain deferred payments
- 26 U.S.C. § 6049 — Returns regarding payments of interest
- 26 U.S.C. § 7872 — Treatment of loans with below-market interest rates
- 26 U.S.C. § 856 — Definition of real estate investment trust
- 26 U.S.C. § 860B — Taxation of holders of regular interests
- 26 U.S.C. § 871 — Tax on nonresident alien individuals
Nearby sections (25 sections)
- 1250 · Gain from dispositions of certain depreciable realty
- 1251 · Repealed. Pub. L. 98–369, div. A, title IV, § 492(a), July 18,…
- 1252 · Gain from disposition of farm land
- 1253 · Transfers of franchises, trademarks, and trade names
- 1254 · Gain from disposition of interest in oil, gas, geothermal, or…
- 1255 · Gain from disposition of section 126 property
- 1256 · Section 1256 contracts marked to market
- 1257 · Disposition of converted wetlands or highly erodible croplands
- 1258 · Recharacterization of gain from certain financial transactions
- 1259 · Constructive sales treatment for appreciated financial positions
- 1260 · Gains from constructive ownership transactions
- 1271 · Treatment of amounts received on retirement or sale or exchange…
- 1272 · Current inclusion in income of original issue discount
- 1273 · Determination of amount of original issue discount
- 1274 · Determination of issue price in the case of certain debt…
- 1274A · Special rules for certain transactions where stated principal…
- 1275 · Other definitions and special rules
- 1276 · Disposition gain representing accrued market discount treated as…
- 1277 · Deferral of interest deduction allocable to accrued market…
- 1278 · Definitions and special rules
- 1281 · Current inclusion in income of discount on certain short-term…
- 1282 · Deferral of interest deduction allocable to accrued discount
- 1283 · Definitions and special rules
- 1286 · Tax treatment of stripped bonds
- 1287 · Denial of capital gain treatment for gains on certain…