r/title-26-INTERNAL-REVENUE-CODE wiki — defined terms

“10-percent owner” applies in that section

The term “10-percent owner” means, with respect to any entity, any person who holds 10 percent or more (by value) of the interests in such entity immediately before the transfer. (B) Constructive ownership Section 318 shall apply in determining ownership of stock in a corporation. Similar principles shall apply in determining the ownership of interests in any other entity. (3) Related person For purposes of this subsection,

“applicable asset acquisition” applies in that section

the term “applicable asset acquisition” means any transfer (whether directly or indirectly)— (1) of assets which constitute a trade or business, and (2) with respect to which the transferee’s basis in such assets is determined wholly by reference to the consideration paid for such assets. A transfer shall not be treated as failing to be an applicable asset acquisition merely because section 1031 applies to a portion of the assets transferred.

“related person” applies in that section

the term “related person” means any person who is related (within the meaning of section 267(b) or 707(b)(1)) to the 10-percent owner. (f) Cross reference For provisions relating to penalties for failure to file a return required by this section, see section 6721.

“applicable partnership interest” applies in that section

the term “applicable partnership interest” means any interest in a partnership which, directly or indirectly, is transferred to (or is held by) the taxpayer in connection with the performance of substantial services by the taxpayer, or any other related person, in any applicable trade or business. The previous sentence shall not apply to an interest held by a person who is employed by another entity that is conducting a trade or business (other than an applicable trade or business) and only provides services to such other entity. (2) Applicable trade or business

“applicable trade or business” applies in that section

The term “applicable trade or business” means any activity conducted on a regular, continuous, and substantial basis which, regardless of whether the activity is conducted in one or more entities, consists, in whole or in part, of— (A) raising or returning capital, and (B) either— (i) investing in (or disposing of) specified assets (or identifying specified assets for such investing or disposition), or (ii) developing specified assets. (3) Specified asset

“specified asset” applies in that section

The term “specified asset” means securities (as defined in section 475(c)(2) without regard to the last sentence thereof), commodities (as defined in section 475(e)(2)), real estate held for rental or investment, cash or cash equivalents, options or derivative contracts with respect to any of the foregoing, and an interest in a partnership to the extent of the partnership’s proportionate interest in any of the foregoing.

“third party investor” applies in that section

The term “third party investor” means a person who— (A) holds an interest in the partnership which does not constitute property held in connection with an applicable trade or business; and (B) is not (and has not been) actively engaged, and is (and was) not related to a person so engaged, in (directly or indirectly) providing substantial services described in paragraph (1) for such partnership or any applicable trade or business.

“net income tax” applies in that section

The term “net income tax” means the regular tax liability reduced by the credits allowed under subparts A, B, and D of part IV of subchapter A. (2) Qualified farmland property (A) In general

“qualified farmer” applies in that section

The term “qualified farmer” means any individual who is actively engaged in farming (within the meaning of subsections (b) and (c) of section 1001 of the Food Security Act of 1986 1 ( 7 U.S.C. 1308–1(b) and (c))). (e) Return requirement A taxpayer making an election under subsection (a) shall include with the return for the taxable year of the sale or exchange described in subsection (a) a copy of the covenant or other legally enforceable restriction described in subsection (d)(2)(A)(ii).

“qualified farmland property” applies in that section

The term “qualified farmland property” means real property located in the United States— (i) which— (I) has been used by the taxpayer as a farm for farming purposes, or (II) leased by the taxpayer to a qualified farmer for farming purposes, during substantially all of the 10-year period ending on the date of the qualified sale or exchange, and (ii) which is subject to a covenant or other legally enforceable restriction which prohibits the use of such property other than as a farm for farming purposes for any period before the date that is 10 years after the date of the sale or exchange described in subsection (a).

“securities futures contract” applies in that section

the term “securities futures contract” has the meaning provided by section 1234B(c). (f) Cash settlement This section shall not fail to apply to a contract or option to acquire or sell stock or securities solely by reason of the fact that the contract or option settles in (or could be settled in) cash or property other than such stock or securities.

“applicable stock price” applies in that section

the term “applicable stock price” means, with respect to any stock for which an option has been granted— (i) the closing price of such stock on the most recent day on which such stock was traded before the date on which such option was granted, or (ii) the opening price of such stock on the day on which such option was granted, but only if such price is greater than 110 percent of the price determined under clause (i). (H) Regulations The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this paragraph.

“deep-in-the-money option” applies in that section

the term “deep-in-the-money option” means an option having a strike price lower than the lowest qualified bench mark. (D) Lowest qualified bench mark (i) In general Except as otherwise provided in this subparagraph, for purposes of subparagraph (C),

“identified straddle” applies throughout this title

The term “identified straddle” means any straddle— (i) which is clearly identified on the taxpayer’s records as an identified straddle before the earlier of— (I) the close of the day on which the straddle is acquired, or (II) such time as the Secretary may prescribe by regulations. (ii) to the extent provided by regulations, the value of each position of which (in the hands of the taxpayer immediately before the creation of the straddle) is not less than the basis of such position in the hands of the taxpayer at the time the straddle is created, and (iii) which is not part of a larger straddle.

“lowest qualified bench mark” applies in that section

the term “lowest qualified bench mark” means the highest available strike price which is less than the applicable stock price. (ii) Special rule where option is for period more than 90 days and strike price exceeds $50 In the case of an option— (I) which is granted more than 90 days before the date on which such option expires, and (II) with respect to which the strike price is more than $50, the lowest qualified bench mark is the second highest available strike price which is less than the applicable stock price.

“personal property” applies in that section

The term “personal property” means any personal property of a type which is actively traded. (2) Position

“position” applies in that section

The term “position” means an interest (including a futures or forward contract or option) in personal property. (3) Special rules for stock For purposes of paragraph (1)— (A) In general In the case of stock,

“qualified covered call option” applies in that section

the term “qualified covered call option” means any option granted by the taxpayer to purchase stock held by the taxpayer (or stock acquired by the taxpayer in connection with the granting of the option) but only if— (i) such option is traded on a national securities exchange which is registered with the Securities and Exchange Commission or other market which the Secretary determines has rules adequate to carry out the purposes of this paragraph, (ii) such option is granted more than 30 days before the day on which the option expires, (iii) such option is not a deep-in-the-money option, (iv) such option is not granted by an options dealer (within the meaning of section 1256(g)(8)) in …

“section 1256 contract” applies throughout its chapter

The term “section 1256 contract” has the meaning given such term by section 1256(b). (7) Special rules for foreign currency (A) Position to include interest in certain debt For purposes of paragraph (2), an obligor’s interest in a nonfunctional currency denominated debt obligation is treated as a position in the nonfunctional currency. (B) Actively traded requirement For purposes of paragraph (1), foreign currency for which there is an active interbank market is presumed to be actively traded.

“straddle” applies in that section

The term “straddle” means offsetting positions with respect to personal property. (2) Offsetting positions (A) In general A taxpayer holds offsetting positions with respect to personal property if there is a substantial diminution of the taxpayer’s risk of loss from holding any position with respect to personal property by reason of his holding 1 or more other positions with respect to personal property (whether or not of the same kind).

“strike price” applies in that section

the term “strike price” means the price at which the option is exercisable. (G) Applicable stock price For purposes of subparagraph (D),

“unrecognized gain” applies in that section

The term “unrecognized gain” means— (i) in the case of any position held by the taxpayer as of the close of the taxable year, the amount of gain which would be taken into account with respect to such position if such position were sold on the last business day of such taxable year at its fair market value, and (ii) in the case of any position with respect to which, as of the close of the taxable year, gain has been realized but not recognized, the amount of gain so realized.

“aggregate gross assets” applies in that section

the term “aggregate gross assets” means the amount of cash and the aggregate adjusted bases of other property held by the corporation. (B) Treatment of contributed property For purposes of subparagraph (A), the adjusted basis of any property contributed to the corporation (or other property with a basis determined in whole or in part by reference to the adjusted basis of property so contributed) shall be determined as if the basis of the property contributed to the corporation (immediately after such contribution) were equal to its fair market value as of the time of such contribution.

“applicable date” applies in that section

The term “applicable date” means the date of the enactment of this paragraph. (B) Acquisition date In the case of any stock which would (but for this paragraph) be treated as having been acquired before, on, or after the applicable date, whichever is applicable, the acquisition date for purposes of this section shall be the first day on which such stock was held by the taxpayer determined after the application of section 1223.

“eligible corporation” applies in that section

the term “eligible corporation” means any domestic corporation; except that such term shall not include— (A) a DISC or former DISC, (B) a regulated investment company, real estate investment trust, or REMIC, and (C) a cooperative. (5) Stock in other corporations (A) Look-thru in case of subsidiaries For purposes of this subsection, stock and debt in any subsidiary corporation shall be disregarded and the parent corporation shall be deemed to own its ratable share of the subsidiary’s assets, and to conduct its ratable share of the subsidiary’s activities.

“eligible gain” applies in that section

the term “eligible gain” means any gain from the sale or exchange of qualified small business stock held for at least 3 years (more than 5 years in the case of stock acquired on or before the applicable date). (3) Treatment of married individuals (A) Separate returns In the case of a separate return by a married individual for any taxable year— (i) paragraph (4)(A) shall be applied by substituting “$5,000,000” for “$10,000,000”, and (ii) paragraph (4)(B) shall be applied by substituting one-half of the dollar amount in effect under such paragraph for the taxable year for the amount so in effect.

“parent-subsidiary controlled group” applies in that section

the term “parent-subsidiary controlled group” means any controlled group of corporations as defined in section 1563(a)(1), except that— (i) “more than 50 percent” shall be substituted for “at least 80 percent” each place it appears in section 1563(a)(1), and (ii) section 1563(a)(4) shall not apply. (e) Active business requirement (1) In general For purposes of subsection (c)(2), the requirements of this subsection are met by a corporation for any period if during such period— (A) at least 80 percent (by value) of the assets of such corporation are used by such corporation in the active conduct of 1 or more qualified trades or businesses, and (B) such corporation is an eligible corporation.

“pass-thru entity” applies in that section

the term “pass-thru entity” means— (A) any partnership, (B) any S corporation, (C) any regulated investment company, and (D) any common trust fund. (h) Certain tax-free and other transfers For purposes of this section— (1) In general In the case of a transfer described in paragraph (2), the transferee shall be treated as— (A) having acquired such stock in the same manner as the transferor, and (B) having held such stock during any continuous period immediately preceding the transfer during which it was held (or treated as held under this subsection) by the transferor.

“qualified small business” applies in that section

The term “qualified small business” means any domestic corporation which is a C corporation if— (A) the aggregate gross assets of such corporation (or any predecessor thereof) at all times on or after the date of the enactment of the Revenue Reconciliation Act of 1993 and before the issuance did not exceed $75,000,000, (B) the aggregate gross assets of such corporation immediately after the issuance (determined by taking into account amounts received in the issuance) do not exceed $75,000,000, and (C) such corporation agrees to submit such reports to the Secretary and to shareholders as the Secretary may require to carry out the purposes of this section.

“qualified small business stock” applies in that section

the term “qualified small business stock” means any stock in a C corporation which is originally issued after the date of the enactment of the Revenue Reconciliation Act of 1993, if— (A) as of the date of issuance, such corporation is a qualified small business, and (B) except as provided in subsections (f) and (h), such stock is acquired by the taxpayer at its original issue (directly or through an underwriter)— (i) in exchange for money or other property (not including stock), or (ii) as compensation for services provided to such corporation (other than services performed as an underwriter of such stock). (2) Active business requirement; etc.

“qualified trade or business” applies in that section

the term “qualified trade or business” means any trade or business other than— (A) any trade or business involving the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of 1 or more of its employees, (B) any banking, insurance, financing, leasing, investing, or similar business, (C) any farming business (including the business of raising or harvesting trees), (D) any business involving the production or extraction of products of a character with …

“specialized small business investment company” applies in that section

the term “specialized small business investment company” means any eligible corporation (as defined in subsection (e)(4)) which is licensed to operate under section 301(d) of the Small Business Investment Act of 1958 (as in effect on May 13, 1993 ).

“adjusted taxable income” applies in that section

the term “adjusted taxable income” means taxable income increased by the sum of— (i) the amount allowed for the taxable year under paragraph (1) or (2) of section 1211(b), and (ii) the deduction allowed for such year under section 151 or any deduction in lieu thereof. For purposes of the preceding sentence, any excess of the deductions allowed for the taxable year over the gross income for such year shall be taken into account as negative taxable income.

“foreign expropriation capital loss” applies in that section

the term “foreign expropriation capital loss” means, for any taxable year, the sum of the losses taken into account in computing the net capital loss for such year which are— (i) losses sustained directly by reason of the expropriation, intervention, seizure, or similar taking of property by the government of any foreign country, any political subdivision thereof, or any agency or instrumentality of the foregoing, or (ii) losses (treated under section 165(g)(1) as losses from the sale or exchange of capital assets) from securities which become worthless by reason of the expropriation, intervention, seizure, or similar taking of property by the government of any foreign country, any …

“net section 1256 contract gain” applies in that section

The term “net section 1256 contract gain” means the lesser of— (i) the capital gain net income for the taxable year determined by taking into account only gains and losses from section 1256 contracts, or (ii) the capital gain net income for the taxable year. (B) Special rule The net section 1256 contract gain for any taxable year before the loss year shall be computed without regard to the net section 1256 contracts loss for the loss year or for any taxable year thereafter.

“net section 1256 contracts loss” applies in that section

the term “net section 1256 contracts loss” means the lesser of— (A) the net capital loss for the taxable year determined by taking into account only gains and losses from section 1256 contracts, or (B) the sum of the amounts which, but for paragraph (6)(A), would be treated as capital losses in the succeeding taxable year under subparagraphs (A) and (B) of subsection (b)(1). (5) Net section 1256 contract gain For purposes of paragraph (1)— (A) In general

“section 1256 contract” applies in that section

The term “section 1256 contract” means any section 1256 contract (as defined in section 1256(b)) to which section 1256 applies. (B) Exclusion for estates and trusts This subsection shall not apply to any estate or trust.

“capital asset” applies in that section

the term “capital asset” means property held by the taxpayer (whether or not connected with his trade or business), but does not include— (1) stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business; (2) property, used in his trade or business, of a character which is subject to the allowance for depreciation provided in section 167, or real property used in his trade or business; (3) a patent, invention, model or design (whether or not patented), a secret formula or …

“commodities derivative financial instrument” applies in that section

The term “commodities derivative financial instrument” means any contract or financial instrument with respect to commodities (other than a share of stock in a corporation, a beneficial interest in a partnership or trust, a note, bond, debenture, or other evidence of indebtedness, or a section 1256 contract (as defined in section 1256(b))), the value or settlement price of which is calculated by or determined by reference to a specified index. (ii) Specified index

“commodities derivatives dealer” applies in that section

The term “commodities derivatives dealer” means a person which 1 regularly offers to enter into, assume, offset, assign, or terminate positions in commodities derivative financial instruments with customers in the ordinary course of a trade or business. (B) Commodities derivative financial instrument (i) In general

“hedging transaction” applies in that section

the term “hedging transaction” means any transaction entered into by the taxpayer in the normal course of the taxpayer’s trade or business primarily— (i) to manage risk of price changes or currency fluctuations with respect to ordinary property which is held or to be held by the taxpayer, (ii) to manage risk of interest rate or price changes or currency fluctuations with respect to borrowings made or to be made, or ordinary obligations incurred or to be incurred, by the taxpayer, or (iii) to manage such other risks as the Secretary may prescribe in regulations.

“specified index” applies in that section

The term “specified index” means any one or more or any combination of— (I) a fixed rate, price, or amount, or (II) a variable rate, price, or amount, which is based on any current, objectively determinable financial or economic information with respect to commodities which is not within the control of any of the parties to the contract or instrument and is not unique to any of the parties’ circumstances. (2) Hedging transaction (A) In general For purposes of this section,

“capital gain net income” applies in that section

The term “capital gain net income” means the excess of the gains from sales or exchanges of capital assets over the losses from such sales or exchanges. (10) Net capital loss

“long-term capital gain” applies in that section

The term “long-term capital gain” means gain from the sale or exchange of a capital asset held for more than 1 year, if and to the extent such gain is taken into account in computing gross income. (4) Long-term capital loss

“long-term capital loss” applies in that section

The term “long-term capital loss” means loss from the sale or exchange of a capital asset held for more than 1 year, if and to the extent that such loss is taken into account in computing taxable income. (5) Net short-term capital gain

“net capital gain” applies in that section

The term “net capital gain” means the excess of the net long-term capital gain for the taxable year over the net short-term capital loss for such year.

“net capital loss” applies in that section

The term “net capital loss” means the excess of the losses from sales or exchanges of capital assets over the sum allowed under section 1211. In the case of a corporation, for the purpose of determining losses under this paragraph, amounts which are short-term capital losses under section 1212(a)(1) shall be excluded. (11) Net capital gain

“net long-term capital gain” applies in that section

The term “net long-term capital gain” means the excess of long-term capital gains for the taxable year over the long-term capital losses for such year. (8) Net long-term capital loss

“net long-term capital loss” applies in that section

The term “net long-term capital loss” means the excess of long-term capital losses for the taxable year over the long-term capital gains for such year. (9) Capital gain net income

“net short-term capital gain” applies in that section

The term “net short-term capital gain” means the excess of short-term capital gains for the taxable year over the short-term capital losses for such year. (6) Net short-term capital loss

“net short-term capital loss” applies in that section

The term “net short-term capital loss” means the excess of short-term capital losses for the taxable year over the short-term capital gains for such year. (7) Net long-term capital gain

“short-term capital gain” applies in that section

The term “short-term capital gain” means gain from the sale or exchange of a capital asset held for not more than 1 year, if and to the extent such gain is taken into account in computing gross income. (2) Short-term capital loss

“short-term capital loss” applies in that section

The term “short-term capital loss” means loss from the sale or exchange of a capital asset held for not more than 1 year, if and to the extent that such loss is taken into account in computing taxable income. (3) Long-term capital gain

“net section 1231 gain” applies in that section

the term “net section 1231 gain” means the excess of— (A) the section 1231 gains, over (B) the section 1231 losses. (4) Net section 1231 loss For purposes of this subsection,

“net section 1231 loss” applies in that section

the term “net section 1231 loss” means the excess of— (A) the section 1231 losses, over (B) the section 1231 gains. (5) Special rules For purposes of determining the amount of the net section 1231 gain or loss for any taxable year, the rules of paragraph (4) of subsection (a) shall apply.

“non-recaptured net section 1231 losses” applies in that section

the term “non-recaptured net section 1231 losses” means the excess of— (A) the aggregate amount of the net section 1231 losses for the 5 most recent preceding taxable years, over (B) the portion of such losses taken into account under paragraph (1) for such preceding taxable years. (3) Net section 1231 gain For purposes of this subsection,

“property used in the trade or business” applies in that section

The term “property used in the trade or business” means property used in the trade or business, of a character which is subject to the allowance for depreciation provided in section 167, held for more than 1 year, and real property used in the trade or business, held for more than 1 year, which is not— (A) property of a kind which would properly be includible in the inventory of the taxpayer if on hand at the close of the taxable year, (B) property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, (C) a patent, invention, model or design (whether or not patented), a secret formula or process, a copyright, a literary, musical, or artistic …

“section 1231 gain” applies in that section

The term “section 1231 gain” means— (i) any recognized gain on the sale or exchange of property used in the trade or business, and (ii) any recognized gain from the compulsory or involuntary conversion (as a result of destruction in whole or in part, theft or seizure, or an exercise of the power of requisition or condemnation or the threat or imminence thereof) into other property or money of— (I) property used in the trade or business, or (II) any capital asset which is held for more than 1 year and is held in connection with a trade or business or a transaction entered into for profit. (B) Section 1231 loss

“section 1231 loss” applies in that section

The term “section 1231 loss” means any recognized loss from a sale or exchange or conversion described in subparagraph (A). (4) Special rules For purposes of this subsection— (A) In determining under this subsection whether gains exceed losses— (i) the section 1231 gains shall be included only if and to the extent taken into account in computing gross income, and (ii) the section 1231 losses shall be included only if and to the extent taken into account in computing taxable income, except that section 1211 shall not apply.

“property” applies in that section

the term “property” includes only stocks and securities (including stocks and securities dealt with on a “when issued” basis), and commodity futures, which are capital assets in the hands of the taxpayer, but does not include any position to which section 1092(b) applies; (B) in the case of futures transactions in any commodity on or subject to the rules of a board of trade or commodity exchange, a commodity future requiring delivery in 1 calendar month shall not be considered as property substantially identical to another commodity future requiring delivery in a different calendar month; (C) in the case of a short sale of property by an individual, the term “taxpayer”, in the application …

“stock” applies in that section

the term “stock” means any share or certificate of stock in a corporation, any bond or other evidence of indebtedness which is convertible into any such share or certificate, or any evidence of an interest in, or right to subscribe to or purchase, any of the foregoing.

“cash settlement option” applies in that section

the term “cash settlement option” means any option which on exercise settles in (or could be settled in) cash or property other than the underlying property.

“closing transaction” applies in that section

The term “closing transaction” means any termination of the taxpayer’s obligation under an option in property other than through the exercise or lapse of the option. (B) Property

“property” applies in that section

The term “property” means stocks and securities (including stocks and securities dealt with on a “when issued” basis), commodities, and commodity futures. (3) Nonapplication of subsection This subsection shall not apply to any option granted in the ordinary course of the taxpayer’s trade or business of granting options. (c) Treatment of options on section 1256 contracts and cash settlement options (1) Section 1256 contracts Gain or loss shall be recognized on the exercise of an option on a section 1256 contract (within the meaning of section 1256(b)).

“securities futures contract” applies in that section

the term “securities futures contract” means any security future (as defined in section 3(a)(55)(A) of the Securities Exchange Act of 1934, as in effect on the date of the enactment of this section). The Secretary may prescribe regulations regarding the status of contracts the values of which are determined directly or indirectly by reference to any index which becomes (or ceases to be) a narrow-based security index (as defined for purposes of section 1256(g)(6)). (d) Contracts not treated as commodity futures contracts For purposes of this title, a securities futures contract shall not be treated as a commodity futures contract.

“holder” applies in that section

the term “holder” means— (1) any individual whose efforts created such property, or (2) any other individual who has acquired his interest in such property in exchange for consideration in money or money’s worth paid to such creator prior to actual reduction to practice of the invention covered by the patent, if such individual is neither— (A) the employer of such creator, nor (B) related to such creator (within the meaning of subsection (c)).

“floor specialist” applies in that section

The term “floor specialist” means a person who is— (A) a member of a national securities exchange, (B) is registered as a specialist with the exchange, and (C) meets the requirements for specialists established by the Securities and Exchange Commission. (e) Special rule for options For purposes of subsection (a), any security acquired by a dealer pursuant to an option held by such dealer may be treated as held for investment only if the dealer, before the close of the day on which the option was acquired, clearly identified the option on his records as held for investment. For purposes of the preceding sentence,

“option” applies in that section

the term “option” includes the right to subscribe to or purchase any security.

“security” applies in that section

the term “security” means any share of stock in any corporation, certificate of stock or interest in any corporation, note, bond, debenture, or evidence of indebtedness, or any evidence of an interest in or right to subscribe to or purchase any of the foregoing.

“tract of real property” applies in that section

the term “tract of real property” means a single piece of real property, except that 2 or more pieces of real property shall be considered a tract if at any time they were contiguous in the hands of the taxpayer or if they would be contiguous except for the interposition of a road, street, railroad, stream, or similar property. If, following the sale or exchange of any lot or parcel from a tract of real property, no further sales or exchanges of any other lots or parcels from the remainder of such tract are made for a period of 5 years, such remainder shall be deemed a tract.

“controlled entity” applies in that section

the term “controlled entity” means, with respect to any person— (A) a corporation more than 50 percent of the value of the outstanding stock of which is owned (directly or indirectly) by or for such person, (B) a partnership more than 50 percent of the capital interest or profits interest in which is owned (directly or indirectly) by or for such person, and (C) any entity which is a related person to such person under paragraph (3), (10), (11), or (12) of section 267(b). (2) Constructive ownership For purposes of this section, ownership shall be determined in accordance with rules similar to the rules under section 267(c) (other than paragraph (3) thereof).

“related persons” applies in that section

the term “related persons” means— (1) a person and all entities which are controlled entities with respect to such person, (2) a taxpayer and any trust in which such taxpayer (or his spouse) is a beneficiary, unless such beneficiary’s interest in the trust is a remote contingent interest (within the meaning of section 318(a)(3)(B)(i)), and (3) except in the case of a sale or exchange in satisfaction of a pecuniary bequest, an executor of an estate and a beneficiary of such estate. (c) Controlled entity defined (1) General rule For purposes of this section,

“section 1244 stock” applies in that section

the term “section 1244 stock” means stock in a domestic corporation if— (A) at the time such stock is issued, such corporation was a small business corporation, (B) such stock was issued by such corporation for money or other property (other than stock and securities), and (C) such corporation, during the period of its 5 most recent taxable years ending before the date the loss on such stock was sustained, derived more than 50 percent of its aggregate gross receipts from sources other than royalties, rents, dividends, interests, annuities, and sales or exchanges of stocks or securities.

“recomputed basis” applies in that section

The term “recomputed basis” means, with respect to any property, its adjusted basis recomputed by adding thereto all adjustments reflected in such adjusted basis on account of deductions (whether in respect of the same or other property) allowed or allowable to the taxpayer or to any other person for depreciation or amortization. (B) Taxpayer may establish amount allowed For purposes of subparagraph (A), if the taxpayer can establish by adequate records or other sufficient evidence that the amount allowed for depreciation or amortization for any period was less than the amount allowable, the amount added for such period shall be the amount allowed.

“section 1245 property” applies in that section

the term “section 1245 property” means any property which is or has been property of a character subject to the allowance for depreciation provided in section 167 and is either— (A) personal property, (B) other property (not including a building or its structural components) but only if such other property is tangible and has an adjusted basis in which there are reflected adjustments described in paragraph (2) for a period in which such property (or other property)— (i) was used as an integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electrical energy, gas, water, or sewage disposal services, (ii) constituted a research facility used …

“10-percent corporate shareholder” applies in that section

the term “10-percent corporate shareholder” means any domestic corporation which, as of the day before the exchange referred to in paragraph (1), satisfies the stock ownership requirements of subsection (a)(2) with respect to the foreign corporation. (j) Coordination with dividends received deduction In the case of the sale or exchange by a domestic corporation of stock in a foreign corporation held for 1 year or more, any amount received by the domestic corporation which is treated as a dividend by reason of this section shall be treated as a dividend for purposes of applying section 245A.

“additional depreciation” applies in that section

The term “additional depreciation” means, in the case of any property, the depreciation adjustments in respect of such property; except that, in the case of property held more than one year, it means such adjustments only to the extent that they exceed the amount of the depreciation adjustments which would have resulted if such adjustments had been determined for each taxable year under the straight line method of adjustment.

“applicable percentage” applies in that section

the term “applicable percentage” means— (i) in the case of section 1250 property with respect to which a mortgage is insured under section 221(d)(3) or 236 of the National Housing Act, or housing financed or assisted by direct loan or tax abatement under similar provisions of State or local laws and with respect to which the owner is subject to the restrictions described in section 1039(b)(1)(B) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990), 100 percent minus 1 percentage point for each full month the property was held after the date the property was held 100 full months; (ii) in the case of dwelling units which, on the average, were …

“depreciation adjustments” applies in that section

The term “depreciation adjustments” means, in respect of any property, all adjustments attributable to periods after December 31, 1963 , reflected in the adjusted basis of such property on account of deductions (whether in respect of the same or other property) allowed or allowable to the taxpayer or to any other person for exhaustion, wear and tear, obsolescence, or amortization (other than amortization under section 168 (as in effect before its repeal by the Tax Reform Act of 1976), 169, 185 (as in effect before its repeal by the Tax Reform Act of 1986), 188 (as in effect before its repeal by the Revenue Reconciliation Act of 1990), 190, or 193).

“improvement” applies in that section

The term “improvement” means, in the case of any section 1250 property, any addition to capital account for such property after the initial acquisition or after completion of the property. (g) Adjustments to basis The Secretary shall prescribe such regulations as he may deem necessary to provide for adjustments to the basis of property to reflect gain recognized under subsection (a). (h) Application of section This section shall apply notwithstanding any other provision of this subtitle.

“renewal period” applies in that section

the term “renewal period” means any period for which the lease may be renewed, extended, or continued pursuant to an option exercisable by the lessee, but (B) the inclusion of renewal periods shall not extend the period taken into account by more than ⅔ of the period on the basis of which the depreciation adjustments were allowed. (3) Depreciation adjustments

“section 1250 property” applies in that section

the term “section 1250 property” means any real property (other than section 1245 property, as defined in section 1245(a)(3)) which is or has been property of a character subject to the allowance for depreciation provided in section 167. (d) Exceptions and limitations (1) Gifts Subsection (a) shall not apply to a disposition by gift. (2) Transfers at death Except as provided in section 691 (relating to income in respect of a decedent), subsection (a) shall not apply to a transfer at death.

“separate improvement” applies in that section

The term “separate improvement” means each improvement added during the 36–month period ending on the last day of any taxable year to the capital account for the property, but only if the sum of the amounts added to such account during such period exceeds the greatest of— (i) 25 percent of the adjusted basis of the property, (ii) 10 percent of the adjusted basis of the property, determined without regard to the adjustments provided in paragraphs (2) and (3) of section 1016(a), or (iii) $5,000.

“farm land” applies in that section

the term “farm land” means any land with respect to which deductions have been allowed under section 175 (relating to soil and water conservation expenditures). (3) Applicable percentage For purposes of this section— If the farm land is disposed of— The applicable percentage is— Within 5 years after the date it was acquired 100 percent. Within the sixth year after it was acquired 80 percent. Within the seventh year after it was acquired 60 percent. Within the eighth year after it was acquired 40 percent. Within the ninth year after it was acquired 20 percent. 10 years or more years after it was acquired 0 percent.

“franchise” applies in that section

The term “franchise” includes an agreement which gives one of the parties to the agreement the right to distribute, sell, or provide goods, services, or facilities, within a specified area. (2) Significant power, right, or continuing interest

“significant power, right, or continuing interest” applies in that section

The term “significant power, right, or continuing interest” includes, but is not limited to, the following rights with respect to the interest transferred: (A) A right to disapprove any assignment of such interest, or any part thereof. (B) A right to terminate at will. (C) A right to prescribe the standards of quality of products used or sold, or of services furnished, and of the equipment and facilities used to promote such products or services. (D) A right to require that the transferee sell or advertise only products or services of the transferor. (E) A right to require that the transferee purchase substantially all of his supplies and equipment from the transferor.

“transfer” applies in that section

The term “transfer” includes the renewal of a franchise, trademark, or trade name. (c) Treatment of contingent payments by transferor Amounts received or accrued on account of a transfer, sale, or other disposition of a franchise, trademark, or trade name which are contingent on the productivity, use, or disposition of the franchise, trademark, or trade name transferred shall be treated as amounts received or accrued from the sale or other disposition of property which is not a capital asset.

“section 1254 property” applies in that section

The term “section 1254 property” means any property (within the meaning of section 614) if— (A) any expenditures described in paragraph (1)(A) are properly chargeable to such property, or (B) the adjusted basis of such property includes adjustments for deductions for depletion under section 611. (4) Adjustment for amounts included in gross income under section 617(b)(1)(A) The amount of the expenditures referred to in paragraph (1)(A)(i) shall be properly adjusted for amounts included in gross income under section 617(b)(1)(A).

“dealer equity option” applies in that section

The term “dealer equity option” means, with respect to an options dealer, any listed option which— (A) is an equity option, (B) is purchased or granted by such options dealer in the normal course of his activity of dealing in options, and (C) is listed on the qualified board or exchange on which such options dealer is registered. (5) Listed option

“dealer securities futures contract” applies in that section

The term “dealer securities futures contract” means, with respect to any dealer, any securities futures contract, and any option on such a contract, which— (i) is entered into by such dealer (or, in the case of an option, is purchased or granted by such dealer) in the normal course of his activity of dealing in such contracts or options, as the case may be, and (ii) is traded on a qualified board or exchange.

“equity option” applies in that section

The term “equity option” means any option— (A) to buy or sell stock, or (B) the value of which is determined directly or indirectly by reference to any stock or any narrow-based security index (as defined in section 3(a)(55) of the Securities Exchange Act of 1934, as in effect on the date of the enactment of this paragraph).

“foreign currency contract” applies in that section

The term “foreign currency contract” means a contract— (i) which requires delivery of, or the settlement of which depends on the value of, a foreign currency which is a currency in which positions are also traded through regulated futures contracts, (ii) which is traded in the interbank market, and (iii) which is entered into at arm’s length at a price determined by reference to the price in the interbank market.

“hedging loss” applies in that section

The term “hedging loss” means the excess of— (i) the deductions allowable under this chapter for the taxable year attributable to hedging transactions (determined without regard to subparagraph (A)(i)), over (ii) income received or accrued by the taxpayer during such taxable year from such transactions. (E) Unrecognized gain

“hedging transaction” applies in that section

the term “hedging transaction” means any hedging transaction (as defined in section 1221(b)(2)(A)) if, before the close of the day on which such transaction was entered into (or such earlier time as the Secretary may prescribe by regulations), the taxpayer clearly identifies such transaction as being a hedging transaction. (3) Special rule for syndicates (A) In general Notwithstanding paragraph (2), the term “hedging transaction” shall not include any transaction entered into by or for a syndicate. (B) Syndicate defined For purposes of subparagraph (A),

“listed option” applies in that section

The term “listed option” means any option (other than a right to acquire stock from the issuer) which is traded on (or subject to the rules of) a qualified board or exchange. (6) Equity option

“mixed straddle” applies in that section

the term “mixed straddle” means any straddle (as defined in section 1092(c))— (A) at least 1 (but not all) of the positions of which are section 1256 contracts, and (B) with respect to which each position forming part of such straddle is clearly identified, before the close of the day on which the first section 1256 contract forming part of the straddle is acquired (or such earlier time as the Secretary may prescribe by regulations), as being part of such straddle. (e) Mark to market not to apply to hedging transactions (1) Section not to apply Subsection (a) shall not apply in the case of a hedging transaction. (2) Definition of hedging transaction For purposes of this subsection,

“nonequity option” applies in that section

The term “nonequity option” means any listed option which is not an equity option. (4) Dealer equity option

“options dealer” applies in that section

The term “options dealer” means any person registered with an appropriate national securities exchange as a market maker or specialist in listed options. (B) Persons trading in other markets In any case in which the Secretary makes a determination under subparagraph (C) of paragraph (7), the term “options dealer” also includes any person whom the Secretary determines performs functions similar to the persons described in subparagraph (A). Such determinations shall be made to the extent appropriate to carry out the purposes of this section. (9) Dealer securities futures contract (A) In general

“qualified board or exchange” applies in that section

The term “qualified board or exchange” means— (A) a national securities exchange which is registered with the Securities and Exchange Commission, (B) a domestic board of trade designated as a contract market by the Commodity Futures Trading Commission, or (C) any other exchange, board of trade, or other market which the Secretary determines has rules adequate to carry out the purposes of this section. (8) Options dealer (A) In general

“regulated futures contract” applies in that section

The term “regulated futures contract” means a contract— (A) with respect to which the amount required to be deposited and the amount which may be withdrawn depends on a system of marking to market, and (B) which is traded on or subject to the rules of a qualified board or exchange. (2) Foreign currency contract defined (A) Foreign currency contract

“section 1256 contract” applies in that section

the term “section 1256 contract” means— (A) any regulated futures contract, (B) any foreign currency contract, (C) any nonequity option, (D) any dealer equity option, and (E) any dealer securities futures contract. (2) Exceptions The term “section 1256 contract” shall not include— (A) any securities futures contract or option on such a contract unless such contract or option is a dealer securities futures contract, or (B) any interest rate swap, currency swap, basis swap, interest rate cap, interest rate floor, commodity swap, equity swap, equity index swap, credit default swap, or similar agreement. (c) Terminations, etc.

“securities futures contract” applies in that section

The term “securities futures contract” has the meaning given to such term by section 1234B.

“syndicate” applies in that section

the term “syndicate” means any partnership or other entity (other than a corporation which is not an S corporation) if more than 35 percent of the losses of such entity during the taxable year are allocable to limited partners or limited entrepreneurs (within the meaning of section 461(k)(4)).

“unrecognized gain” applies in that section

The term “unrecognized gain” has the meaning given to such term by section 1092(a)(3). (f) Special rules (1) Denial of capital gains treatment for property identified as part of a hedging transaction For purposes of this title, gain from any property shall in no event be considered as gain from the sale or exchange of a capital asset if such property was at any time personal property (as defined in section 1092(d)(1)) identified under subsection (e)(2) by the taxpayer as being part of a hedging transaction.

“converted wetland” applies in that section

The term “converted wetland” means any converted wetland (as defined in section 1201(a)(7) of the Food Security Act of 1985 ( 16 U.S.C. 3801(7) )) held— (A) by the person whose activities resulted in such land being converted wetland, or (B) by any other person who at any time used such land for farming purposes. (2) Highly erodible cropland

“highly erodible cropland” applies in that section

The term “highly erodible cropland” means any highly erodible cropland (as defined in section 1201(a)(10) of the Food Security Act of 1985 ( 16 U.S.C. 3801(10) )), if at any time the taxpayer used such land for farming purposes (other than the grazing of animals). (3) Treatment of successors If any land is converted wetland or highly erodible cropland in the hands of any person, such land shall be treated as converted wetland or highly erodible cropland in the hands of any other person whose adjusted basis in such land is determined (in whole or in part) by reference to the adjusted basis of such land in the hands of such person.

“applicable imputed income amount” applies in that section

the term “applicable imputed income amount” means, with respect to any disposition or other termination referred to in subsection (a), an amount equal to— (1) the amount of interest which would have accrued on the taxpayer’s net investment in the conversion transaction for the period ending on the date of such disposition or other termination (or, if earlier, the date on which the requirements of subsection (c) ceased to be satisfied) at a rate equal to 120 percent of the applicable rate, reduced by (2) the amount treated as ordinary income under subsection (a) with respect to any prior disposition or other termination of a position which was held as a part of such transaction.

“applicable rate” applies in that section

The term “applicable rate” means— (A) the applicable Federal rate determined under section 1274(d) (compounded semiannually) as if the conversion transaction were a debt instrument, or (B) if the term of the conversion transaction is indefinite, the Federal short-term rates in effect under section 6621(b) during the period of the conversion transaction (compounded daily).

“applicable straddle” applies in that section

The term “applicable straddle” means any straddle (within the meaning of section 1092(c)). (2) Applicable rate

“built-in loss” applies in that section

the term “built-in loss” means the loss (if any) which would have been realized if the position had been disposed of or otherwise terminated at its fair market value as of the time such position became part of the conversion transaction. (4) Position taken into account at fair market value In determining the taxpayer’s net investment in any conversion transaction, there shall be included the fair market value of any position which becomes part of such transaction (determined as of the time such position became part of such transaction).

“commodities trader” applies in that section

The term “commodities trader” means any person who is a member (or, except as otherwise provided in regulations, is entitled to trade as a member) of a domestic board of trade which is designated as a contract market by the Commodity Futures Trading Commission.

“conversion transaction” applies in that section

the term “conversion transaction” means any transaction— (1) substantially all of the taxpayer’s expected return from which is attributable to the time value of the taxpayer’s net investment in such transaction, and (2) which is— (A) the holding of any property (whether or not actively traded), and the entering into a contract to sell such property (or substantially identical property) at a price determined in accordance with such contract, but only if such property was acquired and such contract was entered into on a substantially contemporaneous basis, (B) an applicable straddle, (C) any other transaction which is marketed or sold as producing capital gains from a transaction described in …

“options dealer” applies in that section

The term “options dealer” has the meaning given such term by section 1256(g)(8). (ii) Commodities trader

“appreciated financial position” applies in that section

the term “appreciated financial position” means any position with respect to any stock, debt instrument, or partnership interest if there would be gain were such position sold, assigned, or otherwise terminated at its fair market value.

“forward contract” applies in that section

The term “forward contract” means a contract to deliver a substantially fixed amount of property (including cash) for a substantially fixed price. (2) Offsetting notional principal contract

“offsetting notional principal contract” applies in that section

The term “offsetting notional principal contract” means, with respect to any property, an agreement which includes— (A) a requirement to pay (or provide credit for) all or substantially all of the investment yield (including appreciation) on such property for a specified period, and (B) a right to be reimbursed for (or receive credit for) all or substantially all of any decline in the value of such property.

“position” applies in that section

The term “position” means an interest, including a futures or forward contract, short sale, or option. (c) Constructive sale For purposes of this section— (1) In general A taxpayer shall be treated as having made a constructive sale of an appreciated financial position if the taxpayer (or a related person)— (A) enters into a short sale of the same or substantially identical property, (B) enters into an offsetting notional principal contract with respect to the same or substantially identical property, (C) enters into a futures or forward contract to deliver the same or substantially identical property, (D) in the case of an appreciated financial position that is a short sale or a contract …

“financial asset” applies in that section

The term “financial asset” means— (A) any equity interest in any pass-thru entity, and (B) to the extent provided in regulations— (i) any debt instrument, and (ii) any stock in a corporation which is not a pass-thru entity. (2) Pass-thru entity For purposes of paragraph (1),

“forward contract” applies in that section

The term “forward contract” means any contract to acquire in the future (or provide or receive credit for the future value of) any financial asset. (e) Net underlying long-term capital gain For purposes of this section, in the case of any constructive ownership transaction with respect to any financial asset,

“net underlying long-term capital gain” applies in that section

the term “net underlying long-term capital gain” means the aggregate net capital gain that the taxpayer would have had if— (1) the financial asset had been acquired for fair market value on the date such transaction was opened and sold for fair market value on the date such transaction was closed, and (2) only gains and losses that would have resulted from the deemed ownership under paragraph (1) were taken into account. The amount of the net underlying long-term capital gain with respect to any financial asset shall be treated as zero unless the amount thereof is established by clear and convincing evidence.

“pass-thru entity” applies in that section

the term “pass-thru entity” means— (A) a regulated investment company, (B) a real estate investment trust, (C) an S corporation, (D) a partnership, (E) a trust, (F) a common trust fund, (G) a passive foreign investment company (as defined in section 1297 without regard to subsection (d) thereof), and (H) a REMIC.

“acquisition discount” applies in that section

the term “acquisition discount” means the excess of the stated redemption price at maturity over the taxpayer’s basis for the obligation. (D) Ratable share For purposes of this paragraph, except as provided in subparagraph (E), the ratable share of the acquisition discount is an amount which bears the same ratio to such discount as— (i) the number of days which the taxpayer held the obligation, bears to (ii) the number of days after the date the taxpayer acquired the obligation and up to (and including) the date of its maturity.

“short-term Government obligation” applies in that section

the term “short-term Government obligation” means any obligation of the United States or any of its possessions, or of a State or any political subdivision thereof, or of the District of Columbia, which has a fixed maturity date not more than 1 year from the date of issue. Such term does not include any tax-exempt obligation. (C) Acquisition discount For purposes of this paragraph,

“short-term nongovernment obligation” applies in that section

the term “short-term nongovernment obligation” means any obligation which— (i) has a fixed maturity date not more than 1 year from the date of the issue, and (ii) is not a short-term Government obligation (as defined in paragraph (3)(B) without regard to the last sentence thereof). (C) Ratable share For purposes of this paragraph, except as provided in subparagraph (D), the ratable share of the original issue discount is an amount which bears the same ratio to such discount as— (i) the number of days which the taxpayer held the obligation, bears to (ii) the number of days after the date of original issue and up to (and including) the date of its maturity.

“accrual period” applies in that section

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.

“purchase” applies in that 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.

“initial offering price” applies throughout its subpart

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 …

“original issue discount” applies throughout its subpart

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

“price paid by the first buyer” applies throughout its subpart

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 …

“property” applies throughout its subpart

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

“stated redemption price at maturity” applies throughout its subpart

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.

“lowest 3-month rate” applies in that section

the term “lowest 3-month rate” means the lowest of the applicable Federal rates in effect for any month in the 3-calendar-month period ending with the 1st calendar month in which there is a binding contract in writing for such sale or exchange. (3) Term of debt instrument In determining the term of a debt instrument for purposes of this subsection, under regulations prescribed by the Secretary, there shall be taken into account options to renew or extend.

“potentially abusive situation” applies in that section

the term “potentially abusive situation” means— (i) a tax shelter (as defined in section 6662(d)(2)(C)(ii)), and (ii) any other situation which, by reason of— (I) recent sales transactions, (II) nonrecourse financing, (III) financing with a term in excess of the economic life of the property, or (IV) other circumstances, is of a type which the Secretary specifies by regulations as having potential for tax avoidance.

“cash method debt instrument” applies in that section

the term “cash method debt instrument” means any qualified debt instrument if— (A) the stated principal amount does not exceed $2,000,000, (B) the lender does not use an accrual method of accounting and is not a dealer with respect to the property sold or exchanged, (C) section 1274 would have applied to such instrument but for an election under this subsection, and (D) an election under this subsection is jointly made with respect to such debt instrument by the borrower and lender. (3) Successors bound by election (A) In general Except as provided in subparagraph (B), paragraph (1) shall apply to any successor to the borrower or lender with respect to a cash method debt instrument.

“qualified debt instrument” applies in that section

the term “qualified debt instrument” means any debt instrument given in consideration for the sale or exchange of property (other than new section 38 property within the meaning of section 48(b), as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) if the stated principal amount of such instrument does not exceed $2,800,000.

“date of original issue” applies throughout its subpart

the term “date of original issue” means the date on which the issue was first issued to the public. (B) Issues not publicly offered and not issued for property In the case of any debt instrument to which section 1273(b)(2) applies,

“debt instrument” applies throughout its subpart

the term “debt instrument” means a bond, debenture, note, or certificate or other evidence of indebtedness. (B) Exception for certain annuity contracts The term “debt instrument” shall not include any annuity contract to which section 72 applies and which— (i) depends (in whole or in substantial part) on the life expectancy of 1 or more individuals, or (ii) is issued by an insurance company subject to tax under subchapter L (or by an entity described in section 501(c) and exempt from tax under section 501(a) which would be subject to tax under subchapter L were it not so exempt)— (I) in a transaction in which there is no consideration other than cash or another annuity contract meeting the …

“personal use property” applies in that section

the term “personal use property” means any property substantially all of the use of which by the taxpayer is not in connection with a trade or business of the taxpayer or an activity described in section 212. The determination of whether property is described in the preceding sentence shall be made as of the time of issuance of the debt instrument. (c) Information requirements (1) Information required to be set forth on instrument (A) In general In the case of any debt instrument having original issue discount, the Secretary may by regulations require that— (i) the amount of the original issue discount, and (ii) the issue date, be set forth on such instrument.

“tax-exempt obligation” applies throughout its subpart

The term “tax-exempt obligation” means any obligation if— (A) the interest on such obligation is not includible in gross income under section 103, or (B) the interest on such obligation is exempt from tax (without regard to the identity of the holder) under any other provision of law. (4) Treatment of obligations distributed by corporations Any debt obligation of a corporation distributed by such corporation with respect to its stock shall be treated as if it had been issued by such corporation for property.

“disallowed interest expense” applies in that section

the term “disallowed interest expense” means the aggregate amount disallowed under subsection (a) with respect to the market discount bond. (c) Net direct interest expense For purposes of this section,

“net direct interest expense” applies in that section

the term “net direct interest expense” means, with respect to any market discount bond, the excess (if any) of— (1) the amount of interest paid or accrued during the taxable year on indebtedness which is incurred or continued to purchase or carry such bond, over (2) the aggregate amount of interest (including original issue discount) includible in gross income for the taxable year with respect to such bond. In the case of any financial institution which is a bank (as defined in section 585(a)(2)), the determination of whether interest is described in paragraph (1) shall be made under principles similar to the principles of section 291(e)(1)(B)(ii).

“net interest income” applies in that section

the term “net interest income” means the excess of the amount determined under paragraph (2) of subsection (c) over the amount determined under paragraph (1) of subsection (c). (2) Remainder of disallowed interest expense allowed for year of disposition (A) In general Except as otherwise provided in this paragraph, the amount of the disallowed interest expense with respect to any market discount bond shall be treated as interest paid or accrued by the taxpayer in the taxable year in which such bond is disposed of.

“bond” applies throughout its part

The term “bond” means any bond, debenture, note, certificate, or other evidence of indebtedness. (4) Revised issue price

“market discount” applies throughout its part

The term “market discount” means the excess (if any) of— (i) the stated redemption price of the bond at maturity, over (ii) the basis of such bond immediately after its acquisition by the taxpayer. (B) Coordination where bond has original issue discount In the case of any bond having original issue discount, for purposes of subparagraph (A), the stated redemption price of such bond at maturity shall be treated as equal to its revised issue price.

“market discount bond” applies throughout its part

the term “market discount bond” means any bond having market discount. (B) Exceptions The term “market discount bond” shall not include— (i) Short-term obligations Any obligation with a fixed maturity date not exceeding 1 year from the date of issue. (ii) United States savings bonds Any United States savings bond. (iii) Installment obligations Any installment obligation to which section 453B applies. (C) Section 1277 not applicable to tax-exempt obligations For purposes of section 1277, the term “market discount bond” shall not include any tax-exempt obligation (as defined in section 1275(a)(3)).

“revised issue price” applies throughout its part

The term “revised issue price” means the sum of— (A) the issue price of the bond, and (B) the aggregate amount of the original issue discount includible in the gross income of all holders for periods before the acquisition of the bond by the taxpayer (determined without regard to section 1272(a)(7)) or, in the case of a tax-exempt obligation, the aggregate amount of the original issue discount which accrued in the manner provided by section 1272(a) (determined without regard to paragraph (7) thereof) during periods before the acquisition of the bond by the taxpayer. (5) Original issue discount, etc.

“pass-thru entity” applies throughout this title

The term “pass-thru entity” means any partnership, S corporation, trust, or other pass-thru entity. (c) Cross reference For special rules limiting the application of this section to original issue discount in the case of nongovernmental obligations, see section 1283(c).

“required accrual period” applies throughout this title

the term “required accrual period” means the period— (i) which begins with the first taxable year for which the ownership test of subparagraph (C) is met with respect to the pass-thru entity (or a predecessor), and (ii) which ends with the first taxable year after the taxable year referred to in clause (i) for which the ownership test of subparagraph (C) is not met and with respect to which the Secretary consents to the termination of the required accrual period.

“acquisition discount” applies throughout its subpart

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.

“short-term obligation” applies throughout its subpart

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