26 U.S.C. § 1273 — Determination of amount of original issue discount

(a) General rule. (1) “Original issue discount” means the excess, if any, of (A) stated redemption price at maturity over (B) issue price. (2) “Stated redemption price at maturity” is the amount fixed by the last purchase-agreement modification. It includes interest and other amounts payable then, except fixed-rate interest unconditionally payable at fixed intervals of 1 year or less throughout the instrument’s term. This section does not define “purchase agreement.” (3) If the discount is less than one-quarter of 1 percent of that redemption price times the number of complete years to maturity, treat it as zero.nn(b) Issue price. (1) For publicly offered instruments not issued for property, it is the public initial offering price, excluding bond^* houses and brokers, at which a substantial amount was sold. (2) For instruments not issued for property and not publicly offered, it is the first buyer’s price. (3) For an instrument issued for property, it is the property’s fair market value if (A) part of the issue trades on an established securities market, or (B) it is issued for (i) publicly traded stock^* or securities, or (ii) regulated property regularly traded on an established market. (4) Otherwise, unless paragraph (1), (2), or (3), or section 1274, applies, it is the stated redemption price at maturity. (5) “Property” includes services and the right to use property, but not money. This section does not define “fair market value” or “established securities market.”nn(c) Special rules. (1) “Initial offering price” and “price paid by the first buyer” include all purchaser payments under the purchase agreement, including modifications. (2) For a debt instrument^* and option, security, or other property issued together as an investment unit: (A) determine the unit issue price as if it were a debt instrument; (B) allocate it among elements in proportion to their fair market values; and (C) the debt instrument’s issue price is its allocated share. This section does not define “investment unit.”