26 U.S.C. § 1282 — Deferral of interest deduction allocable to accrued discount

(a) General rule Unless this section says otherwise, the net direct interest expense about any short-term obligation^* must be allowed as a deduction for the taxable year^* only to the extent such expense exceeds the sum of—
(1) the daily portions of the acquisition discount^* for each day during the taxable year on which the taxpayer^* held such obligation, and
(2) the amount of any interest payable on the obligation (other than interest taken into account in determining the amount of the acquisition discount) which accrues during the taxable year while the taxpayer held such obligation (and is not included in the gross income of the taxpayer for such taxable year by reason of the taxpayer’s method of accounting).

(b) Section not to apply to obligations to which section 1281 applies
(1) In general This section does not apply to any short-term obligation to which section 1281 applies.
(2) Election to have section 1281 apply to all obligations
(A) In general A taxpayer may make an election under this paragraph to have section 1281 apply to all short-term obligations acquired by the taxpayer on or after the 1st day of the 1st taxable year to which such election applies.
(B) Period to which election applies An election under this paragraph must 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.

(c) Certain rules made applicable Rules similar to the rules of subsections

(b) and

(c) of section 1277 must apply for this section.

(d) Cross reference For special rules limiting the application of this section to original issue discount for nongovernmental obligations, see section 1283(c).