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

submitted 42 years ago by Pub. L. 98-369 to r/title-26-INTERNAL-REVENUE-CODE · 604 words · no verdicts yet

in plain englishAI-generated · not legal advice

“Original issue discount” is the excess, if any, of a debt instrument’s stated redemption price at maturity over its issue price. The section defines both amounts, gives a small-discount rule, and explains issue prices for different transactions and investment units.

(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.”

the actual law source: uscode.house.gov ↗public domain
(a) General rule

For purposes of this subpart—

(1) In general

The term “original issue discount” means the excess (if any) of—

(A)

the stated redemption price at maturity, over

(B)

the issue price.

(2) Stated redemption price at maturity

The term “stated redemption price at maturity” means the amount fixed by the last modification of the purchase agreement and includes interest and other amounts payable at that time (other than any interest based on a fixed rate, and payable unconditionally at fixed periodic intervals of 1 year or less during the entire term of the debt instrument).

(3) ¼ of 1 percent de minimis rule

If the original issue discount determined under paragraph (1) is less than—

(A)

¼ of 1 percent of the stated redemption price at maturity, multiplied by

(B)

the number of complete years to maturity,

then the original issue discount shall be treated as zero.

(b) Issue price

For purposes of this subpart—

(1) Publicly offered debt instruments not issued for property

In the case of any issue of debt instruments—

(A)

publicly offered, and

(B)

not issued for property,

the issue price is the initial offering price to the public (excluding bond houses and brokers) at which price a substantial amount of such debt instruments was sold.

(2) Other debt instruments not issued for property

In the case of any issue of debt instruments not issued for property and not publicly offered, the issue price of each such instrument is the price paid by the first buyer of such debt instrument.

(3) Debt instruments issued for property where there is public trading

In the case of a debt instrument which is issued for property and which—

(A)

is part of an issue a portion of which is traded on an established securities market, or

(B)
(i)

is issued for stock or securities which are traded on an established securities market, or

(ii)

to the extent provided in regulations, is issued for property (other than stock or securities) of a kind regularly traded on an established market,

the issue price of such debt instrument shall be the fair market value of such property.

(4) Other cases

Except in any case—

(A)

to which paragraph (1), (2), or (3) of this subsection applies, or

(B)

to which section 1274 applies,

the issue price of a debt instrument which is issued for property shall be the stated redemption price at maturity.

(5) Property

In applying this subsection, the term “property” includes services and the right to use property, but such term does not include money.

(c) Special rules for applying subsection (b)

For purposes of subsection (b)—

(1) Initial offering price; price paid by the first buyer

The terms “initial offering price” and “price paid by the first buyer” include the aggregate payments made by the purchaser under the purchase agreement, including modifications thereof.

(2) Treatment of investment units

In the case of any debt instrument and an option, security, or other property issued together as an investment unit—

(A)

the issue price for such unit shall be determined in accordance with the rules of this subsection and subsection (b) as if it were a debt instrument,

(B)

the issue price determined for such unit shall be allocated to each element of such unit on the basis of the relationship of the fair market value of such element to the fair market value of all elements in such unit, and

(C)

the issue price of any debt instrument included in such unit shall be the portion of the issue price of the unit allocated to the debt instrument under subparagraph (B).

Source credit: (Added Pub. L. 98–369, div. A, title I, § 41(a), July 18, 1984, 98 Stat. 536; amended Pub. L. 99–514, title XVIII, § 1803(a)(10), Oct. 22, 1986, 100 Stat. 2794.)

history & why it existsrecord from the source credit
  • 1984Enacted · Pub. L. 98-369 · 98 Stat. 536
  • 1986Amended · Pub. L. 99-514 · 100 Stat. 2794

A history note hasn’t been published yet. The record shows enactment by Pub. L. 98-369 on 1984-07-18.

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