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.
AMENDMENTS 1986—Subsec. (d)(3). Pub. L. 99–514 substituted "paragraphs (3) and (4) of section 1271(a)" for "section 1271(a)(3)".EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99–514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as a note under section 48 of this title.EFFECTIVE DATE Section applicable to taxable years ending after July 18, 1984, and to obligations acquired after that date, see section 44 of Pub. L. 98–369, set out as a note under section 1271 of this title.PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989 For 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 Pub. L. 99–514 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 Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title.
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