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 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 533

the stated redemption price at maturity over the taxpayer's basis for the obligation. "(D) RATABLE SHARE.—For purposes of this paragraph, the ratable share of the acquisition discount is an amount which bears the same ratio to such discount as— f- V ^ "(i) the number of days which the taxpayer held the obligation, bears to ?i^.' "(ii) the number of days after the date the taxpayer acquired the obligation and up to (and including) the date of its maturity. "(b) EXCEPTIONS.—This section shall not apply to— "(1) NATURAL PERSONS.—Any obligation issued by a natural person. "(2) OBLIGATIONS ISSUED BEFORE JULY 2, 1982, BY CERTAIN

ISSUERS.—Any obligation issued before July 2, 1982, by an issuer which— "(A) is not a corporation, and "(B) is not a government or political subdivision thereof. "(c) TRANSITION RULES.— "(1) SPECIAL RULE FOR CERTAIN OBLIGATIONS ISSUED BEFORE

JANUARY 1, 1955.—Paragraph (1) of subsection (a) shall apply to a debt instrument issued before January 1, 1955, only if such instrument was issued with interest coupons or in registered form, or was in such form on March 1, 1954. "(2) SPECIAL RULE FOR CERTAIN OBLIGATIONS WITH RESPECT TO WHICH O R I G I N A L ISSUE DISCOUNT NOT CURRENTLY INCLUDIBLE.—

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"(A) IN GENERAL.—On the sale or exchange of debt instruments issued by a government or political subdivision thereof after December 81, 1954, and before July 2, 1982, or by a corporation after December 31, 1954, and on or before May 27, 1969, any gain realized which does not exceed— "(i) an amount equal to the original issue discount, or "(ii) if at the time of original issue there was no intention to call the debt instrument before maturity, an amount which bears the same ratio to the original issue discount as the number of complete months that the debt instrument was held by the taxpayer bears to the number of complete months from the date of original issue to the date of maturity, shall be considered as ordinary income. "(B) SUBSECTION

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(a)(2)(A) NOT TO APPLY.—Subsection

(a)(2)(A) shall not apply to any debt instrument referred to in subparagraph (A) of this paragraph. "(C) CROSS REFERENCE.— "For current inclusion of original issue discount, see section 1272.

"(d) DOUBLE INCLUSION IN INCOME NOT REQUIRED.—This section and sections 1272 and 1286 shall not require the inclusion of any Post, p. 551. amount previously includible in gross income. "SEC. 1272. CURRENT INCLUSION IN INCOME OF ORIGINAL ISSUE DISCOUNT. "(a) ORIGINAL ISSUE DISCOUNT ON DEBT INSTRUMENTS ISSUED AFTER JULY 1, 1982, INCLUDED IN INCOME ON BASIS OF CONSTANT INTEREST RATE.— "(1) GENERAL RULE.—For purposes of this title, there shall be

included in the gross income of the holder of any debt instru-

26 USC 1272.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/582

 98 STAT. 534

PUBLIC LAW 98-369—JULY 18, 1984 ment having original issue discount issued after July 1, 1982, an amount equal to the sum of the daily portions of the original issue discount for each day during the taxable year on which such holder held such debt instrument. "(2) EXCEPTIONS.—Paragraph (1) shall not apply to— "(A) TAX-EXEMPT OBLIGATIONS.—Any tax-exempt obligation. "(B) UNITED STATES SAVINGS BONDS.—Any United States savings bond. "(C) SHORT-TERM OBLIGATIONS.—Any debt instrument which has a fixed maturity date not more than 1 year from the date of issue. "(D) OBLIGATIONS ISSUED BY NATURAL PERSONS BEFORE

MARCH 2, 1984.—Any obligation issued by a natural person before March 2, 1984. "(E) LOANS BETWEEN NATURAL PERSONS.—

'

"(i) IN GENERAL.—Any loan made by a natural person to another natural person if— "(I) such loan is not made in the course of a trade or business of the lender, and "(II) the amount of such loan (when increased by the outstanding amount of prior loans by such natural person to such other natural person) does not exceed $10,000. "(ii) CLAUSE (i) NOT TO APPLY WHERE TAX AVOIDANCE A PRINCIPAL PURPOSE.—Clause (i) shall not apply if the

loan has as 1 of its principal purposes the avoidance of any Federal tax. "(iii) TREATMENT OF HUSBAND AND WIFE.—For purposes of this subparagraph, a husband and wife shall be treated as 1 person. The preceding sentence shall not apply where the spouses lived apart at all times during the taxable year in which the loan is made. "(3)

DETERMINATION OF DAILY PORTIONS.—For purposes

of

paragraph (1), the daily portion of the original issue discount on any debt instrument shall be determined by allocating to each day in any accrual period its ratable portion of the increase during such accrual period in the adjusted issue price of the debt instrument. For purposes of the preceding sentence, the increase in the adjusted issue price for any accrual period shall be an amount equal to the excess (if any) of— "(A) the product of^ "(i) the adjusted issue price of the debt instrument at the beginning of such accrual period, and "(ii) the yield to maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period), .LfC. " 'I'-H

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"(B) the sum of the amounts payable as interest on such debt instrument during such accrual period. "(4) ADJUSTED ISSUE PRICE.—For purposes of this subsection, the adjusted issue price of any debt instrument at the beginning of any accrual period is the sum of— "(A) the issue price of such debt instrument, plus "(B) the adjustments under this subsection to such issue price for all periods before the first day of such accrual period.

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license: Creative Commons - Attribution Share-Alike - https://creativecommons.org/licenses/by-sa/4.0/


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Page:United States Statutes at Large Volume 98 Part 1.djvu/583

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 535

"(5) ACCRUAL PERIOD.—Except as otherwise provided in regulations prescribed by the Secretary, 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.

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"(6) REDUCTION WHERE SUBSEQUENT HOLDER PAYS ACQUISITION PREMIUM.—

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"(A) REDUCTION.—For purposes of this subsection, in the case of any purchase after its original issue of a debt, i n s t r u m e n t to which this subsection applies, the daily portion for any day shall be reduced by a n a m o u n t equal to the a m o u n t which would b e the daily portion for such d a y (without regard to this paragraph) multiplied by the fraction determined under subparagraph (B). "(B) DETERMINATION O F FRACTION.—For purposes of sub-

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paragraph (A), the fraction determined under this subparagraph is a fraction— "(i) the numerator of which is the excess (if any) of^ "(I) the cost of such debt instrument incurred by . ^.j,,,,,^ the purchaser, over ^ "(11) the issue price of such debt instrument, increased by the portion of original issue discount previously includible in the gross income of any holder (computed without regard to this paragraph), and "(ii) the denominator of which is th^ sum of the daily portions for such debt instrument for all days after the date of such purchase and ending on the stated maturity date (computed without regard to this paragraph). "(b) RATABLE INCLUSION RETAINED FOR CORPORATE DEBT INSTRUMENTS ISSUED BEFORE JULY 2, 1982.— "(1) GENERAL RULE.—There shall be included in the gross

income of the holder of any debt instrument issued by a corporation after May 27, 1969, and before July 2, 1982— --» "(A) the ratable monthly portion of original issue discount, multiplied by "(B) the number of complete months (plus any fractional part of a month determined under paragraph (3)) such holder held such debt instrument during the taxable year. "(2) DETERMINATION OF RATABLE MONTHLY PORTION.—Except

as provided in paragraph (4), the ratable monthly portion of original issue discount shall equal— "(A) the original issue discount, divided by "(B) the number of complete months from the date of original issue to the stated maturity date of the debt instrument. 1 "(3) MONTH DEFINED.—For purposes of this subsection— "(A) COMPLETE MONTH.—A complete month commences with the date of original issue and the corresponding day of each succeeding calendar month (or the last day of a calendar month in which there is no corresponding day). "(B) TRANSFERS DURING MONTH.—In any case where a debt instrument is acquired on any day other than a day s;; determined under subparagraph (A), the ratable monthly portion of original issue discount for the complete month

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Page:United States Statutes at Large Volume 98 Part 1.djvu/584

 98 STAT. 536

PUBLIC LAW 98-369—JULY 18, 1984 (or partial month) in which such acquisition occurs shall be allocated between the transferor and the transferee in accordance with the number of days in such complete (or partial) month each held the debt instrument. "(4) REDUCTION WHERE SUBSEQUENT HOLDER PAYS ACQUISITION PREMIUM.—

"(A) REDUCTION.—For purposes of this subsection, the ratable monthly portion of original issue discount shall not include its share of the acquisition premium. "(B)

Post, p. 740.

SHARE OF ACQUISITION PREMIUM.—For purposes of

subparagraph (A), any month's share of the acquisition premium is an amount (determined at the time of the purchase) equal to— "(i) the excess of— "(I) the cost of such debt instrument incurred by the holder, over "(II) the issue price of such debt instrument, increased by the portion of original issue discount previously includible in the gross income of any holder (computed without regard to this paragraph), "(ii) divided by the number of complete months (plus any fractional part of a month) from the date of such purchase to the stated maturity date of such debt instrument. "(c) EXCEPTIONS.—This section shall not apply to any holder— "(1) who has purchased the debt instrument at a premium, or "(2) which is a life insurance company to which section 811(b) applies. "(d) DEFINITION AND SPECIAL RULE.— "(1) PURCHASE DEFINED.—For purposes

26 USC 1273.

of this 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. "SEC. 1273. DETERMINATION OF AMOUNT OF ORIGINAL ISSUE DISCOUNT. "(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) V* OF 1 PERCENT DE MINIMIS RULE.—If the Original issue discount determined under paragraph (1) is less than—

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Page:United States Statutes at Large Volume 98 Part 1.djvu/585

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 537

"(A) Vi 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 m.^. established securities market, or "(B) is issued for stock or securities which are traded on an established securities market, the issue price of such debt instrument shall be the fair market value of such property. "(4) OTHER CASES.—Except in any case—

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"(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 iitu (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 I 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).

Post, p. 538.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/586

 98 STAT. 538 26 USC 1274.

PUBLIC LAW 98-369—JULY 18, 1984 "SEC. 1274. DETERMINATION OF ISSUE PRICE IN THE CASE OF CERTAIN DEBT INSTRUMENTS ISSUED FOR PROPERTY. "(a) IN GENERAL.—In the case of any debt instrument to which this section appHes, for purposes of this subpart, the issue price shall be— "(1) where there is adequate stated interest, the stated principal amount, or "(2) in any other CEise, the imputed principal amount. "(h) IMPUTED PRINCIPAL AMOUNT.—For purposes of this section— "(1) IN GENERAL.—Except as provided in paragraph (3), the imputed principal amount of any debt instrument shall be equal to the sum of the present values of all payments due under such debt instrument. "(2)

DETERMINATION OF PRESENT VALUE.—For purposes of

paragraph (1), the present value of a payment shall be determined in the manner provided by regulations prescribed by the Secretary— "(A) as of the date of the sale or exchange, and "(B) by using a discount rate equal to 120 percent of the applicable Federal rate, compounded semiannually. "(3) FAIR MARKET VALUE RULE IN POTENTIALLY ABUSIVE SITUATIONS.—

"(A) IN GENERAL.—In the case of any potentially abusive situation, the imputed principal amount of any debt instrument received in exchange for property shall be the fair market value of such property adjusted to take into account other consideration involved in the transaction. "(B) POTENTIALLY ABUSIVE SITUATION DEFINED.—For pur-

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poses of subparagraph (A), the term 'potentially abusive situation' means— "(i) a tax shelter (as defined in section 6661(b)(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.

"(c) DEBT INSTRUMENTS TO WHICH SECTION APPLIES.—

"(1) In GENERAL.—Except as otherwise provided in this subsection, this section shall apply to any debt instrument given in consideration for the sale or exchange of property if— "(A) the stated redemption price at maturity for such debt instrument exceeds— "(i) where there is adequate stated interest, the stated principal amount, or "(ii) in any other case, the testing amount, and "(B) some or all of the payments due under such debt instrument are due more than 6 months after the date of such sale or exchange. "(2) ADEQUATE STATED INTEREST.—For purposes of this section, there is adequate stated interest with respect to any debt instrument if the stated principal amount for such debt instrument is less than or equal to the testing amount.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/587

 PUBLIC LAW 98-369—JULY 18, 1984 "(3) TESTING AMOUNT.—For purposes of this section, the term 'testing amount' means, with respect to any debt instrument, the imputed principal amount of such debt instrument which would be determined under subsection (b) (including paragraph (3) thereof) if a discount rate equal to 110 percent of the applicable Federal rate were used. "(4) EXCEPTIONS.—This section shall not apply to— "(A) SALES FOR LESS THAN $1,000,000 OF FARMS BY INDIVID-

98 STAT. 539 •«

UALS O SMALL BUSINESSES.— R

"(i) IN GENERAL.—Any debt instrument arising from the sale or exchange of a farm (within the meaning of section 6420(c)(2))— "(I) by an individual, estate, or testamentary

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"(II) by a corporation which as of the date of the sale or exchange is a small business corporation (as f.ib i''>('L defined in section 1244(c)(3)), or "(III) by a partnership which as of the date of the . *( 1:/ sale or exchange meets requirements similar to those of section 1244(c)(3). i'-u/i. !^ "(ii) $1,000,000 LIMITATION.—Clause (i) shall apply only if it can be determined at the time of the sale or ^ exchange that the sales price cannot exceed $1,000,000. For purposes of the preceding sentence, all sales and u,.. exchanges which are part of the same transaction (or a series of related transactions) shall be treated as 1 sale or exchange. "(B) SALES OF PRINCIPAL RESIDENCES.—Any debt instrument arising from the sale or exchange by an individual of his principal residence (within the meaning of section 1034). "(C) SALES INVOLVING TOTAL PAYMENTS OF $250,000 OR LESS.—

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"(i) IN GENERAL.—Any debt instrument arising from the sale or exchange of property if the sum of the following amounts does not exceed $250,000: "(I) the aggregate amount of the payments due under such debt instrument and all other debt instruments received as consideration for the sale or exchange, and "(II) the aggregate amount of any other consideration to be received for the sale or exchange.

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"(ii) CONSIDERATION OTHER THAN DEBT INSTRUMENT TAKEN INTO ACCOUNT AT FAIR MARKET VALUE.—For pur-

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poses of clause (i), any consideration (other than a debt instrument) shall be taken into account at its fair market value. "(iii) AGGREGATION OF TRANSACTIONS.—For purposes

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of this subparagraph, all sales and exchanges which are part of the same transaction (or a series of related transactions) shall be treated as 1 sale or exchange. "(D) DEBT INSTRUMENTS WHICH ARE PUBLICLY TRADED OR ISSUED FOR PUBLICLY TRADED PROPERTY.—Any debt instru-

ment to which section 1273(b)(3) applies. "(E) CERTAIN SALES OF PATENTS.—In the case of any transfer described in section 1235(a) (relating to sale or exchange of patents), any amount contingent on the productivity, use, or disposition of the property transferred.

Ante, p. 536.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/588

 98 STAT. 540 POSE,

PUBLIC LAW 98-369—JULY 18, 1984 "(F) SALES OR EXCHANGES TO WHICH SECTION 483(e) APPLIES.—Any debt instrument to the extent section 483(e) (relating to certain land transfers between related persons) applies to such instrument.

p. 553.

"(d) DETERMINATION OF APPLICABLE FEDERAL RATE.—For purposes

of this section— "(1) APPLICABLE FEDERAL RATE.— "(A) IN GENERAL.— "In the case of a debt instrument with a term of: Not over 3 years Over 3 years but not over 9 years. Over 9 years

,,.

The applicable Federal rate is: The Federal short-term rate. The Federal mid-term rate, The Federal long-term rate.

"(B) DETERMINATION OF RATES.—Within 15 days after the close of— "(i) the 6-month period ending on September 30 of any calendar year, or "(ii) the 6-month period ending on March 31 of any calendar year, the Secretary shall determine the Federal short-term rate, mid-term rate, and long-term rate for such 6-month period. "(C) EFFECTIVE DATE OF DETERMINATION.—Any Federal rate determined under subparagraph (A) shall— "(i) apply during the 6-month period beginning on January 1 of the succeeding calendar year in the case of a determination made under subparagraph (B)(i), and "(ii) apply during the 6-month period beginning on July 1 of the calendar year in the case of a determination made under subparagraph (B)(ii). "(D) FEDERAL RATE FOR ANY 6-MONTH PERIOD.—For purposes of this paragraph— "(i) FEDERAL SHORT-TERM RATE.—The Federal shortterm rate for any 6-month period shall be the rate determined by the Secretary based on the average market yield (during such 6-month period) on outstanding marketable obligations of the United States with remaining periods to maturity of 3 years or less. "(ii) FEDERAL MID-TERM AND LONG-TERM RATES.—The

Federal mid-term rate and long-term rate shall be determined in accordance with the principles of clause (i). "(2) RATE APPLICABLE TO ANY SALE OR EXCHANGE.—In the case of any sale or exchange, the determination of the applicable Federal rate shall be made as of the first day on which there is a binding contract in writing for the 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. 26 USC 1275.

"SEC. 1275. OTHER DEFINITIONS AND SPECIAL RULES.

"(a) DEFINITIONS.—For purposes of this subpart— "(1) DEBT INSTRUMENT.—

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Page:United States Statutes at Large Volume 98 Part 1.djvu/589

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 541

"(A) IN GENERAL.—Except as provided in subparagraph (B), 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— "(I) in a transaction in which there is no consideration other than cash or another annuity contract meeting the requirements of this clause, "(II) pursuant to the exercise of an election under an insurance contract by a beneficiary ' thereof on the death of the insured party under such contract, or "(III) in a transaction involving a qualified pension or employee benefit plan.

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"(2) ISSUE DATE.— "^^^ PUBLICLY OFFERED DEBT INSTRUMENTS.—In the CaSe of

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any debt instrument which is publicly offered, 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

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PROPERTY.—In the case of any debt instrument to which section 1273(b)(2) applies, the term 'date of Original issue' means the date on which the debt instrument was sold by the issuer. "(C) OTHER DEBT INSTRUMENTS.—In the case of any debt instrument not described in subparagraph (A) or (B), the term 'date of original issue' means the date on which the debt instrument was issued in a sale or exchange. "(3) TAX-EXEMPT OBLIGATION.—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) SPECIAL RULE FOR DETERMINATION OF ISSUE PRICE IN CASE OF EXCHANGE OF DEBT INSTRUMENTS IN REORGANIZATIONS.— "(A) IN GENERAL.—If—

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"(i) any debt instrument is issued pursuant to a plan of reorganization (within the meaning of section 368(a)(1)) for another debt instrument (hereinafter in this paragraph referred to as the 'old debt instrument'), and "(ii) the amount which (but for this paragraph) would be the issue price of the debt instrument so issued is less than the adjusted issue price of the old debt instrument, then the issue price of the debt instrument so issued shall be treated as equal to the adjusted issue price of the old debt instrument. "(B) DEFINITIONS.—For purposes of this paragraph—

Ante, p. 536. n?. \-.^'^

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Page:United States Statutes at Large Volume 98 Part 1.djvu/590

 98 STAT. 542

PUBLIC LAW 98-369—JULY 18, 1984 "(i) DEBT INSTRUMENT.—The term 'debt instrument' includes an investment unit. "(ii) ADJUSTED ISSUE PRICE.—

"(I) IN GENERAL.—The adjusted issue price of the old debt instrument is its issue price, increased by the portion of any original issue discount previously includible in the gross income of any holder (without regard to subsection (a)(6) or (b)(4) of section 1272 (or the corresponding provisions of prior law)).

Ante, p. 533.

"(II)

Pos«, pp. 556,654.

SPECIAL

RULE

FOR

APPLYING

SECTION

163(e).—For purposes of section 163(e), the adjusted issue price of the old debt instrument is its issue price, increased by any original issue discount previously allowed as a deduction. "(b) TREATMENT OF BORROWER IN THE CASE OF CERTAIN LOANS FOR PERSONAL USE.— "(1) SECTIONS 1274 AND 483 NOT TO APPLY.—In the case of the

Ante, p. 538. Post, p. 553.

obligor under any debt instrument given in consideration for the sale or exchange of property, sections 1274 and 483 shall not apply if such property is personal use property. "(2) ORIGINAL ISSUE DISCOUNT DEDUCTED ON CASH BASIS IN CERTAIN CASES.—In the case of any debt instrument, if—

Posf, pp. 556,654.

"(A) such instrument— "(i) is incurred in connection with the acquisition or carrying of personal use property, and "(ii) has original issue discount (determined after the application of paragraph (1)), and "(B) the obligor under such instrument uses the cash receipts and disbursements method of accounting, notwithstanding section 163(e), the original issue discount on such instrument shall be deductible only when paid. "(3) PERSONAL USE PROPERTY.—For purposes of this subsection, 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. "(B)

SPECIAL RULE FOR INSTRUMENTS NOT PUBLICLY OF-

FERED.—In the case of any issue of debt instruments not publicly offered, the regulations prescribed under subparagraph (A) shall not require the information to be set forth on the debt instrument before any disposition of such instrument by the first buyer. "(2) INFORMATION REQUIRED TO BE SUBMITTED TO SECRETARY.—

In the case of any issue of publicly offered debt instruments having original issue discount, the issuer shall (at such time and

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Page:United States Statutes at Large Volume 98 Part 1.djvu/591

 PUBLIC LAW 98-369—JULY 18, 1984 in such manner as the Secretary shall by regulation prescribe) furnish the Secretary the following information: "(A) The amount of the original issue discount. "(B) The issue date. "(C) Such other information with respect to the issue as the Secretary may by regulations require. For purposes of the preceding sentence, any person who makes a public offering of stripped bonds (or stripped coupons) shall be treated as the issuer of a publicly offered debt instrument having original issue discount. "(3) EXCEPTIONS.—This subsection shall not apply to any obligation referred to in section 1272(a)(2) (relating to exceptions from current inclusion of original issue discount). "(4) CROSS REFERENCE.— "For civil penalty for failure to meet requirements of this subsection, see section 6706. "(d) REGULATION AUTHORITY.—The Secretary may prescribe regu-

lations providing that where, by reason of varying rates of interest, put or call options, indefinite maturities, contingent payments, assumptions of debt instruments, or other circumstances, the tax treatment under this subpart (or section 163(e)) does not carry out the purposes of this subpart (or section 163(e)), such treatment shall be modified to the extent appropriate to carry out the purposes of this subpart (or section 163(e)).

98 STAT. 543

, Ante, p. 533.

Post, p. 555.

Post, pp. 556, 654.

"Subpart B—Market Discount on Bonds SiJ;

"Sec. 1276. Disposition gain representing accrued market discount treated as ordinary income. "Sec. 1277. Deferral of interest deduction allocable to accrued market discount. "Sec. 1278. Definitions and special rules.

"SEC. 1276. DISPOSITION GAIN REPRESENTING ACCRUED MARKET DISCOUNT TREATED AS ORDINARY INCOME. "(a) ORDINARY INCOME.—

"(1) IN GENERAL.—Except as otherwise provided in this section, gain on the disposition of any market discount bond shall be treated as ordinary income to the extent it does not exceed the accrued market discount on such bond. Such gain shall be recognized notwithstanding any other provision of this subtitle. "(2) DISPOSITIONS OTHER THAN SALES, ETC.—For purposes of

paragraph (1), a person disposing of any market discount bond in any transaction other than a sale, exchange, or involuntary conversion shall be treated as realizing an amount equal to the fair market value of the bond. "(3) GAIN TREATED AS INTEREST FOR CERTAIN PURPOSES.—

Except for purposes of sections 871(a), 881, 1441, 1442, and 6049 (and such other provisions as may be specified in regulations), any amount treated as ordinary income under paragraph (1) shall be treated as interest for purposes of this title. "(b) ACCRUED MARKET DISCOUNT.—For purposes of this section— "(1) RATABLE ACCRUAL.—Except as otherwise provided in this subsection or subsection (c), the accrued market discount on any bond shall be an amount which bears the same ratio to the market discount on such bond as— "(A) the number of days which the taxpayer held the bond, bears to

26 USC 1276.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/592

 98 STAT. 544

PUBLIC LAW 98-369—JULY 18, 1984 "(B) the number of days after the date the taxpayer acquired the bond and up to (and including) the date of its maturity. "(2) ELECTION OF ACCRUAL ON BASIS OF CONSTANT INTEREST RATE (IN LIEU OF RATABLE ACCRUAL).—

Ante, p. 533.

"(A) IN GENERAL.—At the election of the taxpayer with respect to any bond, the accrued market discount on such bond shall be the aggregate amount which would have been includible in the gross income of the taxpayer under section 1272(a) (determined without regard to paragraph (2) thereof) with respect to such bond for all periods during which the bond was held by the taxpayer if such bond had been— "(i) originally issued on the date on which such bond was acquired by the taxpayer, "(ii) for an issue price equal to the basis of the taxpayer in such bond immediately after its acquisition. "(B) COORDINATION WHERE BOND HAS ORIGINAL ISSUE DIS-

COUNT.—In the case of any bond having original issue discount, for purposes of applying subparagraph (A)— "(i) the stated redemption price at maturity of such bond shall be treated as equal to its revised issue price, and "(ii) the determination of the portion of the original issue discount which would have been includible in the gross income of the taxpayer under section 1272(a) shall be made under regulations prescribed by the Secretary. "(C) ELECTION IRREVOCABLE.—An election under subparagraph (A), once made with respect to any bond, shall be irrevocable. "(c) TREATMENT OF NONRECOGNITION TRANSACTIONS.—Under regulations prescribed by the Secretary— "(1) TRANSFERRED BASIS PROPERTY.—If a market discount bond is transferred in a nonrecognition transaction and such bond is transferred basis property in the hands of the transferee, for purposes of determining the amount of the accrued market discount with respect to the transferee— "(A) the transferee shall be treated as having acquired the bond on the date on which it was acquired by the transferor for an amount equal to the basis of the transferor, and "(B) proper adjustments shall be made for gain recognized by the transferor on such transfer (and for any original issue discount or market discount included in the gross income of the transferor). "(2) EXCHANGED BASIS PROPERTY.—If any market discount bond is disposed of by the taxpayer in a nonrecognition transaction and paragraph (1) does not apply to such transaction, any accrued market discount determined with respect to the property disposed of to the extent not theretofore treated as ordinary income under subsection (a)— "(A) shall be treated as accrued market discount with respect to the exchanged basis property received by the taxpayer in such transaction if such property is a market discount bond, and

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Page:United States Statutes at Large Volume 98 Part 1.djvu/593

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 545

"(B) shall be treated as ordinary income on the disposition of the exchanged basis property received by the taxpayer in such exchange if such property is not a market discount bond. "(3) PARAGRAPH (i) TO APPLY TO CERTAIN DISTRIBUTIONS BY

CORPORATIONS OR PARTNERSHIPS.—For purposes of paragraph (1), if the basis of any market discount bond in the hands of a transferee is determined under section 334(c), 732(a), or 732(b), such property shall be treated as transferred basis property in the hands of such transferee. "(d) SPECIAL RULES.—Under regulations prescribed by the Secretary— "(1) rules similar to the rules of subsection (b) of section 1245 shall apply for purposes of this section; except that— "(A) paragraph (1) of such subsection shall not apply, and "(B) an exchange qualifying under section 354(a), 355(a), or 356(a) (determined without regard to subsection (a) of j„. this section) shall be treated as an exchange described in paragraph (3) of such subsection, and "(2) appropriate adjustments shall be made to the basis of any property to reflect gain recognized under subsection (a).

frrs q:i\nk.

"(e) SECTION NOT TO APPLY TO MARKET DISCOUNT BONDS ISSUED ON OR BEFORE DATE OF ENACTMENT OF SECTION.—This section shall not

apply to any market discount bond issued on or before the date of the enactment of this section. "SEC. 1277. DEFERRAL OF INTEREST DEDUCTION ALLOCABLE TO ACCRUED MARKET DISCOUNT.

"(a) GENERAL RULE.—Except as otherwise provided in this section, the net direct interest expense with respect to any market discount bond shall be allowed as a deduction for the taxable year only to the extent that such expense exceeds the portion of the market discount allocable to the days during the taxable year on which such bond was held by the taxpayer (as determined under the rules of section 1276(b)).

26 USC 1277.

Ante, p. 543.

"(b) DISALLOWED DEDUCTION ALLOWED FOR LATER YEARS.— "(1) ELECTION TO TAKE INTO ACCOUNT IN LATER YEAR WHERE NET INTEREST INCOME FROM BOND.— "(A) IN GENERAL.—If—

"(i) there is net interest income for any taxable year with respect to any market discount bond, and "(ii) the taxpayer makes an election under this subparagraph with respect to such bond, any disallowed interest expense with respect to such bond shall be treated as interest paid or accrued by the taxpayer during such taxable year to the extent such disallowed interest expense does not exceed the net interest income with respect to such bond. "(B) DETERMINATION OF DISALLOWED INTEREST EXPENSE.—

For purposes of subparagraph (A), the amount of the disallowed interest expense— "(i) shall be determined as of the close of the preceding taxable year, and "(ii) shall not include any amount previously taken into account under subparagraph (A). "(C) NET INTEREST INCOME.—For purposes of this paragaph, the term 'net interest income' means the excess of the

' "

''*^'

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Page:United States Statutes at Large Volume 98 Part 1.djvu/594

 98 STAT. 546

PUBLIC LAW 98-369—JULY 18, 1984 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.—

Ante, p. 543. •

"(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. "(B) NONRECOGNITION TRANSACTIONS.—If any market discount bond is disposed of in a nonrecognition transaction— "(i) the disallowed interest expense with respect to such bond shall be treated as interest paid or accrued in the year of disposition only to the extent of the amount of gain recognized on such disposition, and "(ii) the disallowed interest expense with respect to such property (to the extent not so treated) shall be treated as disallowed interest expense— "(I) in the case of a transaction described in section 1276(c)(1), of the transferee with respect to the transferred basis property, or "(II) in the case of a transaction described in section 1276(c)(2), with respect to the exchanged basis property. "(C) DISALLOWED INTEREST EXPENSE REDUCED FOR AMOUNTS PREVIOUSLY TAKEN INTO ACCOUNT UNDER PARAGRAPH 1.—For purposes of this paragraph, the amount of

Post, p. 574.

the disallowed interest expense shall not include any amount previously taken into account under paragraph (1). "(3) DISALLOWED INTEREST EXPENSE.—For purposes of this subsection, 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, 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 to which section 585 or 593 applies, the determination of whether interest is described in paragraph (1) shall be made under principles similar to the principles of section 291(e)(l)(B)(ii). Under rules similar to the rules of section 265(5), short sale expenses shall be treated as interest for purposes of determining net direct interest expense. "(d) SPECIAL RULE FOR GAIN RECOGNIZED ON DISPOSITION OF MARKET DISCOUNT BONDS ISSUED ON OR BEFORE DATE OF ENACTMENT

OF SECTION.—In the case of a market discount bond issued on or before the date of the enactment of this section, any gain recognized by the taxpayer on any disposition of such bond shall be treated as ordinary income to the extent the amount of such gain does not exceed the amount allowable with respect to such bond under

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Page:United States Statutes at Large Volume 98 Part 1.djvu/595

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 547

subsection (b)(2) for the taxable year in which such bond is disposed of. "SEC. 1278. DEFINITIONS AND SPECIAL RULES.

26 USC 1278.

"(a) IN GENERAL.—For purposes of this part— "(1) MARKET DISCOUNT BOND.—

"(A) IN GENERAL.—Except as provided in subparagraph (B), 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) TAX-EXEMPT OBLIGATIONS.—Any tax-exempt obligation (as defined in section 1275(a)(3)). "(iii) UNITED STATES SAVINGS BONDS.—Any United States savings bond. "(iv) INSTALLMENT OBLIGATIONS.—Any

Ante, p. 540.

installment

obligation to which section 453B applies. mif

"(2) M A R K E T DISCOUNT.—

,.;< yJ ' * "

"(A) IN GENERAL.—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 DIS-

COUNT.—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. ii J»<^Q) pg MINIMIS RULE.—If the market discount is less than Vi of 1 percent of the stated redemption price of the iv f bond at maturity multiplied by the number of complete ,r^^ years to maturity (after the taxpayer acquired the bond), ' * ^ then the market discount shall be considered to be zero. "(3) BOND.—The term 'bond' means any bond, debenture, note, certificate, or other evidence of indebtedness. "(4) REVISED ISSUE PRICE.—The term 'revised issue price' "(A) the issue price of the bond, and
 * , means of the sum of—
 * ,a^r-"(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)(6) or (b)(4)). Ante, p. 533. "(5) ORIGINAL ISSUE DISCOUNT, ETC.—The terms 'original issue discount', 'stated redemption price at maturity', and 'issue price' have the respective meanings given such terms by subpart A of this part. "(b) ELECTION TO INCLUDE MARKET DISCOUNT CURRENTLY.—

"(1) IN GENERAL.—If the taxpayer makes an election under this subsection— "(A) sections 1276 and 1277 shall not apply, and Ante, pp. 543, "(B) market discount on any market discount bond shall 545. be included in the gross income of the taxpayer for the

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Page:Notes and Queries - Series 1 - Volume 1.djvu/225

. 2. 1850.] Antony Alsop. Will any of your correspondents kindly tell me who Antony Alsop was? A thin 4t. volume of Latin Odes was published in 1753, with the following title: " Antonii Alsopi ^Jdis Christi olim Alumni Odaruiu Libri Duo," Lon- dini, 1753. They are extremely elegant, and de- serving the attention of all lovers of Latin poetry. I have also another volume, " Latin and English Pooms, by a Gentleman of Trinity College, Oxford," 4to. London, 1738. In this latter volume, with but two or three exceptions, the poems are very obscene, yet I find one or two of Alsop's odes in it. Could any of your readers tell me if both volumes are by the same author ? Was Alsop at Trinity College and subsequently a student of Christ Church? R. H. Derivations of " Calamity" and " Zero ;" and meaning of " Prutenicce" Will some of your cor- respondents give the derivations of Calamity and Zero ; also the meaning of the word Prutenicae, used by Erasmus Rheinholt, in his astronomical work on the Motions of the Heavenly Bodies f F. S. MABTIN. Jews-Harp. What is the origin of the term Jew's-Harp, applied to a well-known musical toy ? MELANION. Sir G. WyatteiUe. 3. P. would be glad to be informed in what year Sir G. Wyattville was knighted ? Sparse. As I am "less an antique Roman than a Dane," I wish to know what authority there is for the use of this word, which is to be found in a leading article of The Times, January 8th, 1850? "A sparse and hardy race of horsemen." I should like to see this among the Queries, but I send it as a protest. " Hostis et Peregrinus unus et idem." C. FORBES. The word " Peruse." I find the word Peruse employed as a substantive, and apparently as equivalent to Examination, in the following part of a sentence in the martyr Fryth's works, Russell's ed., p. 407. : " He would have been full sore ashamed so to have overseen himself at Oxford, at a peruse." Can any of your correspondents cite a corre- sponding instance of its use, or say whether it is still retained at Oxford as the name of any aca- demic exercise ? 11. V. French Maxim. Who is the author of the fol- lowing French saying? " L'hypocrisie est un hommage que le vice rend a la vertu." U. V. Ave Trici and Gheeze Ysenoudi. If " S. W. SINGKU" can ir'ive information as to what convent, English or foreign, the sisters Ave Trici and Gheeze Ysenoudi, mentioned in his note on Otloh, state themselves (or are assumed) to have be- longed, he will much oblige, by doing so, H. L. B. A Latin Verse. Every body has seen the fol- lowing quotation " Tempora mutantur, nos et mutamur in illis," and every body thinks he knows from whence it is taken. Which of your readers can verify it ? E.V. Table-Book. Can any of your readers refer me to a museum containing a specimen of an ancient table-book f Douce had one, which was in Mr. Rodd's catalogue, but now sold ; and Hone also possessed one. These two, and another in the hands of a friend of mine, are the only specimens I have heard of; but they are not quite as old or as genuine as one could wish. J. O. HAULIWELL. Origin of Name "Polly." Will you allow me to ask how persons of my name came to be called Potty f MAEY. Tomlinson, of Southwingjield, Derbyshire. The parochial register of the parish of Southwing- field, in the county of Derby, contains, among its earliest entries (A. D. 1586), the name of Tomlin- son, as then resident therein. The family, to the present time, continues to reside within the parish, as respectable yeomen, and has thence extended itself to many of the neighbouring parishes, as well as to more distant localities. Blore's History of Sovtihwingjield makes no mention of such a family connected with the parish, as tenants or otherwise; nor does it appear that there is at present any family of Tomlinson bearing arms that can have been derived from any of the ancient lords of Wingfield. The wills at Lichfield, to whose registry Sout^wiugfield belongs, are in a very dilapidated and unsatisfactory state, at the time immediately preceding the commencement of the Southwingfield parochial register. Pro- bably some genealogist will be enabled to offer a suggestion as to the means which are available for tracing the genealogy of this family prior to the year 1586. * * The Phrase " To have a Button in the Room and " Sally." I have again been reading that most amusing book, The Lives of the Norths. At p. 88. of vol. i. (edit. 1826) there is a passage which has always puzzled me. Speaking of some law proceedings in which the Lady Dacres was con- cerned, Roger North says : " And herein she served herself another way, for her adversary defamed her for swearing and ur.swearing, and it was not amiss to have a button in the room." At p. 92. (post) there is another strange ex- >:i :


text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/596

 98 STAT. 548 Ante, p. 543.

PUBLIC LAW 98-369—JULY 18, 1984 taxable years to which it is attributable (as determined under the rules of subsection (b) of section 1276). Except for purposes of sections 871(a), 881, 1441, 1442, and 6049 (and such other provisions as may be specified in regulations), any amount included in gross income under subparagraph (B) shall be treated as interest for purposes of this title. "(2) SCOPE OF ELECTION.—An election under this subsection shall apply to all market discount bonds acquired by the taxpayer on or after the 1st day of the 1st taxable year to which such election applies. "(3) PERIOD TO WHICH ELECTION APPLIES.—An election under this subsection 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. "(c) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subpart. "Subpart C—Discount on Short-Term Obligations "Sec. 1281. Current inclusion in income of discount on certain short-term obligations. "Sec. 1282. Deferral of interest deduction allocable to accrued discount. "Sec. 1283. Definitions and special rules.

26 USC 1281.

"SEC. 1281. CURRENT INCLUSION IN INCOME OF DISCOUNT ON CERTAIN SHORT-TERM OBLIGATIONS.

"(a) IN GENERAL.—In the case of any short-term obligation to which this section applies, for purposes of this title, there shall be included in the gross income of the holder an amount equal to the sum of the daily portions of the acquisition discount for each day during the taxable year on which such holder held such obligation. "(b) SHORT-TERM OBLIGATIONS TO WHICH SECTION APPLIES.—

"(1) IN GENERAL.—This section shall apply to any short-term obligation which— "(A) is held by a taxpayer using an accrual method of accounting, "(B) is held primarily for sale to customers in the ordinary course of the taxpayer's trade or business, "(C) is held by a bank (as defined in section 581), "(D) is held by a regulated investment company or a common trust fund, or "(E) is identified by the taxpayer under section 1256(e)(2) as being part of a hedging transaction. "(2) TREATMENT ENTITIES.—

OF

OBLIGATIONS

HELD

BY

PASS-THRU

"(A) IN GENERAL.—This section shall apply also to— "(i) any short-term obligation which is held by a passthru entity which is formed or availed of for purposes of avoiding the provisions of this section, and "(ii) any short-term obligation which is acquired by a pass-thru entity (not described in clause (i)) during the required accrual period. "(B) REQUIRED ACCRUAL PERIOD.—For purposes of subparagraph (A), 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

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Page:United States Statutes at Large Volume 98 Part 1.djvu/597

 PUBLIC LAW 98-369—JULY 18, 1984 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. "(C) OWNERSHIP TEST.—The ownership test of this subparagraph is met for any taxable year if, on at least 90 days during the taxable year, 20 percent or more of the value of the interests in the pass-thru entity are held by persons described in paragraph (1) or by other pass-thru entities to which subparagraph (A) applies. "(D) PASS-THRU ENTITY.—The term 'pass-thru entity' means any partnership, S corporation, trust, or other passthru entity.

"

98 STAT. 549

'

^ * ^

^ ' q vtk

"(c) CROSS REFERENCE.— "For special rules limitinf^ the application of this section to ori^^inal issue discount in the case of nonj^overnmental obli^^ations, see section 1283(c). "SEC. 1282. DEFERRAL OF INTEREST DEDUCTION ALLOCABLE TO ACCRUED DISCOUNT.

26 USC 1282.

"(a) GENERAL RULE.—Except as otherwise provided in this section, the net direct interest expense with respect to any short-term obligation shall be allowed as a deduction for the taxable year only to the extent that such expense exceeds the sum of the daily portions of the acquisition discount for each day during the taxable year on which the taxpayer held such obligation. "(b) SECTION NOT TO APPLY TO OBLIGATIONS TO WHICH SECTION 1281 APPLIES.—

Ante, p. 548.

"(1) IN GENERAL.—This section shall not apply to any shortterm obligation to which section 1281 applies. "(2) ELECTION TIONS.—

TO H A V E S E C T I O N

1 2 8 1 A P P L Y TO A L L OBLIGA-

"(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. ,Hr

"(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. "(c) CERTAIN RULES MADE APPLICABLE.—Rules similar to the rules of subsections (b) and (c) of section 1277 shall apply for purposes of this section.

Ante, p. 545.

"(d) 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). "SEC. 1283. DEFINITIONS AND SPECIAL RULES.

"(a) DEFINITIONS.—For purposes of this subpart— "(1) SHORT-TERM OBLIGATION.—

26 USC 1283.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/598

 98 STAT. 550

Ante, p. 540.

Ante, p. 536.

PUBLIC LAW 98-369—JULY 18, 1984 "(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 UEU OF RATABLE ACCRUAL).—

"(A) IN GENERAL.—At the election of the taxpayer with respect to any obligation, the daily pjortion 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.—

Ante, p. 532. Ante, pp. 548, 549.

"(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 ( D 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.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/599

 PUBLIC LAW 98-369—JULY 18, 1984 "(2)

98 STAT. 551

DOUBLE INCLUSION IN INCOME NOT REQUIRED.—Section

1281 shall not require the inclusion of any amount previously includible in gross income.

Ante, p. 548.

"(3) COORDINATION WITH OTHER PROVISIONS.—Section 454(b)

and section 1271(a)(3) shall not apply to any short-term obligation to which section 1281 applies.

Ante, p. 532.

"Subpart D—Miscellaneous Provisions "Sec. 1286. Tax treatment of stripped bonds. "Sec. 1287. Denial of capital geiin treatment for gains on certain obligations not in registered form. "Sec. 1288. Treatment of original issue discount on tax-exempt obligations. "SEC. 1286. TAX TREATMENT OF STRIPPED BONDS.

26 USC 1286.

"(a) INCLUSION IN INCOME AS IF BOND AND COUPONS WERE ORIGINAL ISSUE DISCOUNT BONDS.—If any person purchases after July 1,

1982, a stripped bond or a stripped coupon, then such bond or coupon while held by such purchaser (or by any other person whose basis is determined by reference to the basis in the hands of such purchaser) shall be treated for purposes of this part as a bond originally issued on the purchase date and having an original issue discount equal to the excess (if any) of— "(1) the stated redemption price at maturity (or, in the case of coupon, the amount payable on the due date of such coupon), over "(2) such bond's or coupon's ratable share of the purchase price. For purposes of paragraph (2), ratable shares shall be determined on the basis of their respective fair market values on the date of purchase. "(b) TAX TREATMENT OF PERSON STRIPPING BOND.—For purposes of this subtitle, if any person strips 1 or more coupons from a bond and after July 1, 1982, disposes of the bond or such coupon— "(1) such person shall include in gross income an amount equal to the interest accrued on such bond while held by such person and before the time that such coupon or bond was disposed of (to the extent such interest has not theretofore been included in such person's gross income), "(2) the basis of the bond and coupons shall be increased by the amount of the accrued interest described in paragraph (1), "(3) the basis of the bond and coupons immediately before the disposition (as adjusted pursuant to paragraph (2)) shall be allocated among the items retained by such person and the items disposed of by such person on the basis of their respective fair market values, and "(4) for purposes of subsection (a), such person shall be treated as having purchased on the date of such disposition each such item which he retains for an amount equal to the basis allocated to such item under paragraph (3). A rule similar to the rule of paragraph (4) shall apply in the case of any person whose basis in any bond or coupon is determined by reference to the basis of the person described in the preceding sentence. "(c) RETENTION OF EXISTING LAW FOR STRIPPED BONDS PURCHASED BEFORE JULY 2, 1982.—If a bond issued at any time with interest

coupons—

.,..,\

«h

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Page:United States Statutes at Large Volume 98 Part 1.djvu/600

 98 STAT. 552 ,,.,,. -,

Ante, p. 532.

Ante, p. 540.

Ante, p. 536.

Ante, p. 533.

26 USC 1287.

PUBLIC LAW 98-369—JULY 18, 1984 "(1) is purchased after August 16, 1954, and before January 1, 1958, and the purchaser does not receive all the coupons which first become payable more than 12 months after the date of the purchase, or "(2) is purchased after December 31, 1957, and before July 2, 1982, and the purchaser does not receive all the coupons which first become payable after the date of the purchase, then the gain on the sale or other disposition of such bond by such purchaser (or by a person whose basis is determined by reference to the basis in the hands of such purchaser) shall be considered as ordinary income to the extent that the fair market value (determined as of the time of the purchase) of the bond with coupons attached exceeds the purchase price. If this subsection and section 1271(a)(2)(A) apply with respect to gain realized on the sale or exchange of any evidence of indebtedness, then section 1271(a)(2)(A) shall apply with respect to that part of the gain to which this subsection does not apply. "(d) SPECIAL RULES FOR TAX-EXEMPT OBLIGATIONS.—In the case of any tax-exempt obligation (as defined in section 1275(a)(3))— "(1) subsections (a) and (b)(1) shall not apply, "(2) the rules of subsection (b)(4) shall apply for purposes of subsection (c), and "(3) subsection (c) shall be applied without regard to the requirement that the bond be purchased before July 2, 1982. "(e) DEFINITIONS AND SPECIAL RULES.—For purposes of this section— "(1) BOND.—The term 'bond' means a bond, debenture, note, or certificate or other evidence of indebtedness. "(2) STRIPPED BOND.—The term 'stripped bond' means a bond issued at any time with interest coupons where there is a separation in ownership between the bond and any coupon which has not yet become payable. "(3) STRIPPED COUPON.—The term 'stripped coupon' means any coupon relating to a stripped bond. "(4) STATED REDEMPTION PRICE AT MATURITY.—The term 'stated redemption price at maturity' has the meaning given such term by section 1273(a)(2). "(5) COUPON.—The term 'coupon' includes any right to receive interest on a bond (whether or not evidenced by a coupon). This paragraph shall apply for purposes of subsection (c) only in the case of purchases after July 1, 1982. "(6) PURCHASE.—The term 'purchase' has the meaning given such term by section 1272(d)(1). "(f) REGULATION AUTHORITY.—The Secretary may prescribe regulations providing that where, by reason of varying rates of interest, put or call options, or other circumstances, the tax treatment under this section does not accurately reflect the income of the holder of a stripped coupon or stripped bond, or of the person disposing of such bond or coupon, as the case may be, for any period, such treatment shall be modified to require that the proper amount of income be included for such period. "SEC. 1287. DENIAL OF CAPITAL GAIN TREATMENT FOR GAINS ON CERTAIN OBLIGATIONS NOT IN REGISTERED FORM.

"(a) IN GENERAL.—If any registration-required obligation is not in registered form, any gain on the sale or other disposition of such

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Page:United States Statutes at Large Volume 98 Part 1.djvu/601

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 553

obligation shall be treated as ordinary income (unless the issuance of such obligation was subject to tax under section 4701). "(b) DEFINITIONS.—For purposes of subsection (a)— "(1) REGISTRATION-REQUIRED OBLIGATION.—The term 'registration-required obligation' has the meaning given to such term by section 163(f)(2) except that clause (iv) of subparagraph (A), and subparagraph (B), of such section shall not apply. "(2) REGISTERED FORM.—The term 'registered form' has the same meaning as when used in section 163(f). "SEC. 1288. TREATMENT OF ORIGINAL ISSUE DISCOUNT ON TAX-EXEMPT OBLIGATIONS.

"(a) GENERAL RULE.—Original issue discount on any tax-exempt obligation shall be treated as accruing— "(1) for purposes of section 163, in the manner provided by section 1272(a) (determined without regard to paragraph (6) thereof), and "(2) for purposes of determining the adjusted basis of the holder, in the manner provided by section 1272(a) (determined with regard to paragraph (6) thereof). "(b) DEFINITIONS AND SPECIAL RULES.—For purposes of this section— "(1) ORIGINAL ISSUE DISCOUNT.—The term 'original issue discount' has the meaning given to such term by section 1273(a) without regard to paragraph (3) thereof. In applying section 483 or 1274, under regulations prescribed by the Secretary, appropriate adjustments shall be made to the applicable Federal rate to take into account the tax exemption for interest on the obligation. "(2) TAX-EXEMPT OBLIGATION.—The term 'tax-exempt obligation' has the meaning given to such term by section 1275(a)(3). "(3) SHORT-TERM OBLIGATIONS.—In applying this section to obligations with maturity of 1 year or less, rules similar to the rules of section 1283(b) shall apply." (b) AMENDMENT OF SECTION 483.—Section 483 (relating to interest on certain deferred payments) is amended to read as follows:

j

26 USC 1288.

Ante, p. 533.

Ante, p. 536. Infra. Ante, p. 538.

Ante, p. 540. Ante, p. 549. 26 USC 483.

"SEC. 483. INTEREST ON CERTAIN DEFERRED PAYMENTS.

"(a) AMOUNT CONSTITUTING INTEREST.—For purposes of this title, in the case of any payment— "(1) under any contract for the sale or exchange of any property, and "(2) to which this section applies, there shall be treated as interest that portion of the total unstated interest under such contract which, as determined in a manner consistent with the method of computing interest under section 1272(a), is properly allocable to such payment. "(b) TOTAL UNSTATED INTEREST.—For purposes of this section, the term 'total unstated interest' means, with respect to a contract for the sale or exchange of property, an amount equal to the excess of— "(1) the sum of the payments to which this section applies which are due under the contract, over "(2) the sum of the present values of such payments and the present values of any interest payments due under the contract. For purposes of the preceding sentence, the present value of a payment shall be determined under the rules of section 1274(b)(2)

^,,

Ante, p. 538.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/602

 98 STAT. 554 Ante, p. 538.

PUBLIC LAW 98-369—JULY 18, 1984 using a discount rate equal to 120 percent of the applicable Federal rate determined under section 1274(d). "(c) PAYMENTS TO WHICH SUBSECTION (a) APPLIES.—

"(1) IN GENERAL.—Except as provided in subsection (d), this section shall apply to any payment on account of the sale or exchange of property which constitutes part or all of the sales price and which is due more than 6 months after the date of such sale or exchange under a contract— "(A) under which some or all of the payments are due more than 1 year after the date of such sale or exchange, and "(B) under which, using a discount rate equal to 110 percent of the applicable Federal rate determined under section 1274(d), there is total unstated interest. "(2) TREATMENT OF OTHER DEBT INSTRUMENTS.—For purposes of this section, a debt instrument of the purchaser which is given in consideration for the sale or exchange of property shall not be treated as a payment, and any payment due under such debt instrument shall be treated as due under the contract for the sale or exchange. "(3) DEBT INSTRUMENT DEFINED.—For purposes of this subsection, the term 'debt instrument' has the meaning given such term by section 1275(a)(1).

Ante, p. 540.

"(d) EXCEPTIONS AND LIMITATIONS.— "(1) COORDINATION WITH ORIGINAL ISSUE DISCOUNT RULES.—

This section shall not apply to any debt instrument to which section 1272 applies. "(2) SALES PRICES OF $3,000 OR LESS.—This section shall not apply to any payment on account of the sale or exchange of property if it can be determined at the time of such sale or exchange that the sales price cannot exceed $3,000. "(3) CARRYING CHARGES.—In the case of the purchaser, the tax treatment of amounts paid on account of the sale or exchange of property shall be made without regard to this section if any such amounts are treated under section 163(b) as if they included interest. "(4) CERTAIN SALES OF PATENTS.—In the case of any transfer described in section 1235(a) (relating to sale or exchange of patents), this section shall not apply to any amount contingent on the productivity, use, or disposition of the property transferred.

Ante, p. 533.

"(e) INTEREST RATES IN CASE OF SALES OF PRINCIPAL RESIDENCES OR FARM LANDS.—

"(1) IN GENERAL.—In the case of any debt instrument arising from a sale or exchange to which this subsection applies, subsections (b) and (c)(1)(B) shall be applied by using, in lieu of the discount rates determined under such subsections, discount rates determined under subsections (b) and (c)(D, respectively, of this section as it was in effect before the amendments made by the Tax Reform Act of 1984.

Ante, p. 494.

"(2) SALES OR EXCHANGES TO WHICH SUBSECTION APPLIES.—This

subsection shall apply— "(A) to any sale or exchange by an individual of his principal residence (within the meaning of section 1034), Mn,H'A:st.

.-

^nd

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Page:United States Statutes at Large Volume 98 Part 1.djvu/603

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 555

"(B) to any sale or exchange by a person of land used by such person as a farm (within the meaning of section 6420(c)(2)). "(3) LIMITATION.—Paragraph (1) shall apply to any sale or exchange by an individual of his principal residence (within the meaning of section 1034), only to the extent the purchase price of such residence does not exceed $250,000. For purposes of the preceding sentence, the purchase price of a residence shall be determined without regard to this section. "(0 MAXIMUM RATE OF INTEREST ON CERTAIN TRANSFERS OF LAND BETWEEN RELATED PARTIES.—

"(1) IN GENERAL.—In the case of any qualified sale, the discount rate used in determining the total unstated interest rate under subsection 0?) shall not exceed 7 percent, compounded semiannually. "(2) QUALIFIED SALE.—For purposes of this subsection, the term 'qualified sale' means any sale or exchange of land by an individual to a member of such individual's family (within the meaning of section 267(c)(4)). "(3) $500,000 LIMITATION.—Paragraph (1) shall not apply to any qualified sale between individuals made during any calendar year to the extent that the sales price for such sale (when added to the aggregate sales price for prior qualified sales between such individuals during the calendar year) exceeds $500,000. "(4) NONRESIDENT AUEN INDIVIDUALS.—Paragraph (1) shall not apply to any sale or exchange if any party to such sale or exchange is a nonresident alien individual. "(g) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section including regulations providing for the application of this section in the case of— "(1) any contract for the sale or exchange of property under which the liability for, or the amount or due date of, a payment cannot be determined at the time of the sale or exchange, or "(2) any change in the liability for, or the amount or due date of, £my payment (including interest) under a contract for the sale or exchange of property, i "(h) CROSS REFERENCE.— "For special rules in the case of the borrower under certain loans for 2 personal use, see section 1275(b)." (c) PENALTY FOR FAILURE TO MEET INFORMATION REQUIREMENTS.—

<

Ante, p. 540.

(1) IN GENERAL.—Subchapter B of chapter 68 (relating to assessable penalties) is amended by adding at the end thereof the following new section:

"SEC. 6706. ORIGINAL ISSUE DISCOUNT INFORMATION REQUIREMENTS. "(a) FAILURE TO SHOW INFORMATION ON DEBT INSTRUMENT.—In

the case of a failure to set forth on a debt instrument the information required to be set forth on such instrument under section 1275(c)(l), unless it is shown that such failure is due to reasonable cause and not to willful neglect, the issuer shall pay a penalty of $50 for each instrument with respect to which such a failure exists. "(b) FAILURE TO FURNISH INFORMATION TO SECRETARY.—Any

issuer who fails to furnish information required under section 1275(c)(2) with respect to any issue of debt instruments on the date prescribed therefor (determined with regard to any extension of

26 USC 6706. Penalty. Ante, p. 540. Penalty.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/604

 98 STAT. 556

PUBLIC LAW 98-369—JULY 18, 1984 time for filing) shall pay a penalty equal to 1 percent of the aggregate issue price of such issue, unless it is shown that such failure is due to reasonable cause and not willful neglect. The amount of the penalty imposed under the preceding sentence with respect to any issue of debt instruments shall not exceed $50,000 for such issue. "(c) DEFICIENCY PROCEDURES NOT TO APPLY.—Subchapter B of

26 USC 6211.

chapter 63 (relating to deficiency procedures for income, estate, gift, and certain excise taxes) shall not apply in respect of the assessment or collection of any penalty imposed by this section." (2) CLERICAL AMENDMENT.—The table of sections for subchapter B of chapter 68 is amended by adding at the end thereof the following new item: "Sec. 6706. Original issue discount information requirements." SEC. 42. TECHNICAL AND CONFORMING AMENDMENTS RELATED TO ORIGINAL ISSUE DISCOUNT CHANGES. (a) IN GENERAL.—

Repeals. 26 USC 1232, 1232A, 1232B. 26 USC 103A. 26 USC 163. Post, p. 654.

(1) Sections 1232, 1232A, and 1232B are hereby repealed. (2) Clause (i) of section 103A(i)(2)(C) (defining yield on the issue) is amended by striking out "section 1232(b)(2)" and inserting in lieu thereof "sections 1273(b) and 1274". (3) Subsection (e) of section 163 (relating to original issue discount) is amended to read as follows: "(e) ORIGINAL ISSUE DISCOUNT.—

Ante, p. 540.

Ante, p. 533. Ante, p. 536.

'<; te-' *^ ' Ante, p. 553. Ante, p. 540.

26 USC 165.

"(1) IN GENERAL.—In the case of any debt instrument issued after July 1, 1982, the portion of the original issue discount with respect to such debt instrument which is allowable as a deduction to the issuer for any taxable year shall be equal to the aggregate daily portions of the original issue discount for days during such taxable year. "(2) DEFINITIONS AND SPECIAL RULES.—For purposes of this subsection— "(A) DEBT INSTRUMENT.—The term 'debt instrument' has the meaning given such term by section 1275(a)(1). "(B) DAILY PORTIONS.—The daily portion of the original issue discount for any day shall be determined under section 1272(a) (without regard to paragraph (6) thereof and without regard to section 1273(a)(3)). "(3) EXCEPTIONS.—This subsection shall not apply to any debt instrument described in— "(A) subparagraph (D) of section 1272(a)(2) (relating to obligations issued by natural persons before March 2, 1984), and "(B) subparagraph (E) of section 1272(a)(2) (relating to loans between natural persons). "(4) CROSS REFERENCES.— "For provision relating to deduction of original issue discount on taxexempt obligation, see section 1288. "For special rules in the case of the borrower under certain loans for personal use, see section 1275(b)."

(4) Paragraph (3) of section 165(j) (relating to denial of deductions for losses on certain obligations not in registered form) is amended by striking out "subsection (d) of section 1232" and inserting in lieu thereof "section 1287".

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Page:United States Statutes at Large Volume 98 Part 1.djvu/605

 PUBLIC LAW 98-369—JULY 18, 1984 (5) Paragraph (1) of section 249(b) (relating to limitation on deduction of bond premium on repurchase) is amended by striking out "section 1232(b)" and inserting in lieu thereof "sections 1273(b) and 1274". (6) Paragraph (1) of section 405(d) (relating to taxability of beneficiary of qualified bond purchase plan) is amended by striking out "section 1232 (relating to bonds and other evidences of indebtedness)" and inserting in lieu thereof "section 1271 (relating to treatment of amounts received on retirement or sale or exchange of debt instruments)". (7) Paragraph (1) of section 409(b) (relating to income tax treatment of bonds) is amended by striking out "section 1232 (relating to bonds and other evidences of indebtedness)" and inserting in lieu thereof "section 1271 (relating to treatment of amounts received on retirement or sale or exchange of debt instruments)". (8) Paragraph (3) of section 811(b) (relating to amortization of premium and accrual of discount), as amended by this Act, is amended by striking out "section 1232(b)" and inserting in lieu thereof "section 1273". (9) Subparagraph (A) of section 871(a)(1) (relating to income other than capital gains) is amended by striking out "section 1232(b)" and inserting in lieu thereof "section 1273". (10) Paragraph (1) of section 881(a) (relating to imposition of tax) is amended by striking out "section 1232(b)" and inserting in lieu thereof "section 1273". (11) Subsection (b) of section 1037 (relating to application of section 1232) is amended— (A) by striking out "section 1232(a)(2)(B)" In paragraph (1) and inserting in lieu thereof "section 1271(c)(2)", (B) by striking out "section 1232" in paragraphs (1) and (2) and inserting in lieu thereof "subpart A of part V of subchapter P", and (C) by striking out "SECTION 1232" in the subsection heading and inserting in lieu thereof "ORIGINAL ISSUE DIS-

98 STAT. 557 26 USC 249.

26 USC 405.

26 USC 409. P^^t, p. 852.

Post, p. 740.

26 USC 871. 26 USC 881. 26 USC 1037. '-

COUNT RULES".

(12) Subsection (h) of section 1351 (relating to special rule for evidences of indebtedness) is amended by striking out "section 1232(a)(2)" and inserting in lieu thereof "section 1273(a)". (13) Subsection (b) of section 1441 (relating to withholding of tax on nonresident alien) is amended by striking out "section 1232(b)" and inserting in lieu thereof "section 1273". (14) Paragraph (6) of section 6049(d) (relating to treatment of original issue discount) is amended— (A) by striking out "section 1232A" each place it appears in subparagraph (A) and inserting in lieu thereof "section 1272", and (B) by striking out "section 1232(b)(l)" and inserting in lieu thereof "section 1273(a)". (b) CLERICAL AMENDMENTS.—

(1) The table of parts for subchapter P of chapter 1 is amended by adding at the end thereof the following new item: "PART V. Special rules for bonds and other debt instruments."

(2) The table of sections for part IV of subchapter P of chapter 1 is amended by striking out the items relating to sections 1232, 1232A, and 1232B.

26 USC 1351. 26 USC 1441. 26 USC 6049.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/606

 98 STAT. 558

PUBLIC LAW 98-369—JULY 18, 1984 SEC. 43. TECHNICAL AND CONFORMING AMENDMENTS RELATED TO TREATMENT OF MARKET DISCOUNT AND ACQUISITION DISCOUNT. (a) DEFINITION OF SUBSTITUTED BASIS PROPERTY; ETC.—

97 Stat. 379. 26 USC 7701.

26 USC 1016. 26 USC 7805.

(1) IN GENERAL.—Section 7701(a) (relating to definitions) is amended by adding at the end thereof the following new paragraphs: "(42) SUBSTITUTED BASIS PROPERTY.—The term 'substituted basis property' means property which is— "(A) transferred basis property, or "(B) exchanged basis property. "(43) TRANSFERRED BASIS PROPERTY.—The term 'transferred basis property' means property having a basis determined under any provision of subtitle A (or under any corresponding provision of prior income tax law) providing that the basis shall be determined in whole or in part by reference to the basis in the hands of the donor, grantor, or other transferor. "(44) EXCHANGED BASIS PROPERTY.—The term 'exchanged basis property' means property having a basis determined under any provision of subtitle A (or under any corresponding provision of prior income tax law) providing that the basis shall be determined in whole or in part by reference to other property held at any time by the person for whom the basis is to be determined. "(45) NoNRECOGNiTioN TRANSACTION.—The term 'nonrecognition transaction' means any disposition of property in a transaction in which gain or loss is not recognized in whole or in part for purposes of subtitle A." (2) TECHNICAL AMENDMENT.—Subsection (b) of section 1016 is amended by striking out the last sentence. (b) ELECTIONS M A D E IN MANNER PRESCRIBED BY SECRETARY.—

Section 7805 (relating to rules and regulations) is amended by adding at the end thereof the following new subsection: "(d) MANNER OF MAKING ELECTIONS PRESCRIBED BY SECRETARY.—

Except to the extent otherwise provided by this title, any election under this title shall be made at such time and in such manner as the Secretary shall by regulations or forms prescribe." (c) OTHER TECHNICAL AMENDMENTS.—

26 USC 341. 26 USC 453B. 26 USC 751.

Ante, p. 547. Ante, p. 549.

(1) Paragraph (12) of section 341(e) (related to nonapplication of section 1254(a)) is amended by striking out "and 1254(a)" and inserting in lieu thereof "1254(a), and 1276(a)". (2) Paragraph (2) of section 453B(d) (relating to liquidations to which section 337 applies) is amended by striking out "or 1254(a)" and inserting in lieu thereof "1254(a), or 1276(a)". (3) Subsection (c) of section 751 (defining unrealized receivables) is amended by adding at the end thereof the following new sentence: "For purposes of this section and sections 731, 736, and 741, such term also includes any market discount bond (as defined in section 1278) and any short-term obligation (as defined in section 1283) but only to the extent of the amount which would be treated as ordinary income if (at the time of the transaction described in this section or section 731, 736, or 741, as the case may be) such property had been sold by the partnership."

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Page:United States Statutes at Large Volume 98 Part 1.djvu/607

 PUBLIC LAW 98-369—JULY 18, 1984 SEC. 44. EFFECTIVE DATES.

(a) GENERAL RULE.—Except as otherwise provided in this section, the amendments made by this subtitle shall apply to taxable years ending after the date of the enactment of this Act.

98 STAT. 559 26 USC 1271

. SAI.

(b) TREATMENT OF DEBT INSTRUMENTS RECEIVED IN EXCHANGE FOR PROPERTY.— (1) IN GENERAL.—

(A) Except as otherwise provided in this subsection, section 1274 of the Internal Revenue Code of 1954 (as added by section 41) and the amendment made by section 41(b) (relating to amendment of section 483) shall apply to sales or exchanges after December 31, 1984. (B) Section 1274 of such Code and the amendment made by section 41(b) shall not apply to any sale or exchange pursuant to a written contract which was binding on March 1, 1984, and at all times thereafter before the sale or exchange. (2) REVISION OF SECTION 482 REGULATIONS.—Not later than 180 days after the date of the enactment of this Act, the Secretary of the Treasury or his delegate shall modify the safe harbor interest rates applicable under the regulations prescribed under section 482 of the Internal Revenue Code of 1954 so that such rates are consistent with the rates applicable under section 483 of such Code by reason of the amendments made by section 41.

Ante, p. 538. "'Ante, p. 553.

' ' '

ilk

Ante, p. 531.

(3) CLARIFICATION OF INTEREST ACCRUAL; FAIR MARKET VALUE RULE IN CASE OF POTENTIALLY ABUSIVE SITUATIONS.— (A) IN GENERAL.— (i) CLARIFICATION OF INTEREST ACCRUAL.—In the case

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of any sale or exchange— (I) after March 1, 1984, and before January 1, 1985, nothing in section 483 of the Internal Revenue Code of 1954 shall permit any interest to be deductible before the period to which such interest is properly allocable, or (II) after June 8, 1984, and before January 1, 1985, notwithstanding section 483 of the Internal Revenue Code of 1954 or any other provision of law, no interest shall be deductible before the period to which such interest is properly allocable. (ii) FAIR MARKET RULE.—In the case of any sale or exchange after March 1, 1984, and before January 1, 1985, such section 483 shall be treated as including provisions similar to the provisions of section 1274(b)(3) of such Code (as added by section 41).

Ante, p. 553.

Ante, p. 538.

(B) EXCEPTION FOR BINDING CONTRACTS.—Subparagraph

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(A) shall not apply to any sale or exchange pursuant to a written contract which was binding on March 1, 1984, and at all times thereafter before the sale or exchange. (C) INTEREST ACCRUAL RULE NOT TO APPLY WHERE SUBSTANTIALLY EQUAL ANNUAL PAYMENTS.—Clause (i) of subpara-

graph (A) shall not apply to any debt instrument with substantially equal annual payments. (c) MARKET DISCOUNT RULES.— (1) ORDINARY INCOME TREATMENT.—Section 1276 of the Inter-

nal Revenue Code of 1954 (as added by section 41) shall apply to

Ante, p. 543.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/608

 98 STAT. 560

Ante, p. 545.

PUBLIC LAW 98-369—JULY 18, 1984 obligations issued after the date of the enactment of this Act in taxable years ending after such date. (2) INTEREST DEFERRAL RULES.—Section 1277 of such Code (as added by section 41) shall apply to obligations acquired after the date of the enactment of this Act in taxable years ending after such date. (d) RULES RELATING TO DISCOUNT ON SHORT-TERM OBLIGATIONS.—

Ante, p. 548.

Subpart C of part V of subchapter P of chapter 1 of such Code (as added by section 41) shall apply to obligations acquired after the date of the enactment of this Act. (e) 5-YEAR SPREAD OF ADJUSTMENTS REQUIRED BY REASON OF ACCRUAL OF DISCOUNT ON CERTAIN SHORT-TERM OBLIGATIONS.— (1) ELECTION TO HAVE SECTION 1281 APPLY TO ALL OBLIGATIONS HELD DURING TAXABLE YEAR.—A taxpayer may elect for his first

Ante, p. 548.

taxable year ending after the date of the enactment of this Act to have section 1281 of the Internal Revenue Code of 1954 apply to all short-term obligations described in subsection (b) of such section which were held by the taxpayer at any time during such first taxable year. (2) 5-YEAR SPREAD.—

(A) IN GENERAL.—In the case of any taxpayer who makes an election under paragraph (1)— (i) the provisions of section 1281 of the Internal Revenue Code of 1954 (as added by section 41) shall be treated as a change in the method of accounting of the taxpayer, (ii) such change shall be treated as having been made with the consent of the Secretary, and (iii) the net amount of the adjustments required by section 481(a) of such Code to be taken into account by the taxpayer in computing taxable income (hereinafter in this paragraph referred to as the "net adjustments") shall be taken into account during the spread period with the amount taken into account in each taxable year in such period determined under subparagraph (B). (B) AMOUNT TAKEN INTO ACCOUNT DURING EACH YEAR OF SPREAD PERIOD.— (i) FIRST YEAR.—The amount taken into account for

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the first taxable year in the spread period shall be the sum of^ (I) one-fifth of the net adjustments, and (II) the excess (if any) of— (a) the cash basis income over the accrual basis income, over (b) one-fifth of the net adjustments. (ii) FOR SUBSEQUENT YEARS IN SPREAD PERIOD.—The

amount taken into account in the second or any succeeding taxable year in the spread period shall be the sum of^ (I) the portion of the net adjustments not taken into account in the preceding taxable year of the spread period divided by the number of remaining taxable years in the spread period (including the year for which the determination is being made),

(II) the excess (if any) of—

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 PUBLIC LAW 98-369—JULY 18, 1984 V ^*i' •'

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" •

98 STAT. 561

(a) the excess of the cash basis income over the accrual basis income, over (b) one-fifth of the net adjustments, multiplied by 5 minus the number of years remaining in the spread period (not including the current year). The excess described in subparagraph (B)(ii)(II)(a) shall be reduced by any amount taken into account under this subclause or clause (i)(II) in any prior

(C) SPREAD PERIOD.—For purposes of this paragraph, the term "spread period" means the period consisting of the 5 taxable years beginning with the year for which the election is made under paragraph (1), (D) CASH BASIS INCOME.—For purposes of this paragraph, the term "cash basis income" means for any taxable year the aggregate amount which would be includible in the gross income of the taxpayer with respect to short-term obligations described in subsection (b) of section 1281 of such Code if the provisions of section 1281 of such Code did not apply to such taxable year and all prior taxable years within the spread period. (E) ACCRUAL BASIS INCOME.—For purposes of this paragraph, the term "accrual basis income" means for any taxable year the aggregate amount includible in gross income under section 1281(a) of such Code for such a taxable year and all prior taxable years within the spread period.

" '

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-j jiv

Ante, p. 548.

(f) TREATMENT OF ORIGINAL ISSUE DISCOUNT ON TAX-EXEMPT OBLI-

GATIONS.—Section 1288 of such Code (as added by section 41) shall apply to obligations issued after September 3, 1982, and acquired after March 1, 1984. (g) REPEAL OF CAPITAL ASSET REQUIREMENT.—Section 1272 of such Code (as added by section 41) shall not apply to any obligation issued before December 31, 1984, which is not a capital asset in the hands of the taxpayer. (h) REPORTING REQUIREMENTS.—Section 1275(c) of such Code (as added by section 41) and the amendments made by section 41(c) shall take effect on the day 30 days after the date of the enactment of this Act.

Ante, p. 553.

Ante, p. 533. Ante, p. 540. Ante, p. 531.

(i) OTHER MISCELLANEOUS CHANGES.— (1) ACCRUAL PERIOD.—In the case

s

of any obligation issued after July 1, 1982, and before January 1, 1985, the accrual period, for purposes of section 1272(a) of the Internal Revenue Code of 1954 (as amended by section 41(a)), shall be a 1-year period (or shorter period to maturity) beginning on the day in the calendar year which corresponds to the date of original issue of the obligation. (2)

Ante, p. 533.

CHANGE IN REDUCTION FOR PURCHASE AFTER ORIGINAL

ISSUE.—Section 1272(a)(6) of such Code (as so amended) shall not apply to any purchase on or before the date of the enactment of this Act, and the rules of section 1232A(a)(6) of such Code (as in effect on the day before the date of the enactment of this Act) shall continue to apply to such purchase. (j) CLARIFICATION THAT PRIOR EFFECTIVE DATE RULES NOT AF-

FECTED.—Nothing in the amendment made by section 41(a) shall affect the application of any effective date provision (including any

31-194 0 - 86 - 20: OL. 3 Part- 1

Ante, p. 531.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/610

 98 STAT. 562

Ante, p. 531.

PUBLIC LAW 98-369—JULY 18, 1984 transitional rule) for any provision which was a predecessor to any provision contained in part V of subchapter P of chapter 1 of the Internal Revenue Code of 1954 (as added by section 41).

Subtitle D—Corporate Provisions PART I—LIMITATIONS ON DIVIDENDS RECEIVED DEDUCTION

26 USC 246A.

SEC. 51. DIVIDENDS RECEIVED DEDUCTION REDUCED WHERE PORTFOLIO STOCK IS DEBT FINANCED. (a) GENERAL RULE.—Part VIII of subchapter B of chapter 1 (relating to special deductions for corporations) is amended by inserting after section 246 the following new section: "SEC. 246A. DIVIDENDS RECEIVED DEDUCTION REDUCED WHERE PORTFOLIO STOCK IS DEBT FINANCED. "(a) GENERAL RULE.—In the case of any dividend on debt-financed portfolio stock, there shall be substituted for the percentage which (but for this subsection) would be used in determining the amount of the deduction allowable under section 243, 244, or 245 a percentage equal to the product of— "(1) 85 percent, and "(2) 100 percent minus the average indebtedness percentage. "(b) SECTION NOT To APPLY TO DIVIDENDS FOR WHICH 100 PERCENT DIVIDENDS RECEIVED DEDUCTION ALLOWABLE.—Subsection (a) shall

not apply to— "(1) qualifying dividends (as defined in section 2430t)) without regard to section 243(c)(4)), and "(2) dividends received by ^a small business investment company operating under the Small Business Investment Act of 15 USC 661 note. 1958. "(c) DEBT FINANCED PORTFOLIO STOCK.—For purposes of this section— "(1) IN GENERAL.—The term 'debt financed portfolio stock' means any portfolio stock if at some time during the base period there is portfolio indebtedness with respect to such stock. "(2) PoRTFOuo STOCK.—The term 'portfolio stock' means any stock of a corporation unless— "(A) as of the beginning of the ex-dividend date, the taxpayer owns stock of such corporation— "(i) possessing at least 50 percent of the total voting Mb /I *3. i power of the stock of such corporation, and "(ii) having a value equal to at least 50 percent of the total value of the stock of such corporation, or "(B) as of the beginning of the ex-dividend date— "(i) the taxpayer owns stock of such corporation which would meet the requirements of subparagraph (A) if '20 percent' were substituted for '50 percent' each place it appears in such subparagraph, and "(ii) stock meeting the requirements of subparagraph (A) is owned by 5 or fewer corporate shareholders. "(3) SPECIAL RULE FOR STOCK IN A BANK OR BANK HOLDING COMPANY.—

 * f, Sill

"(A) IN GENERAL.—If, as of the beginning of the exdividend date, the taxpayer owns stock of any bank or bank

ii e.

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 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 563

rii c ^

holding company having a value equal to at least 80 percent of the total value of the stock of such bank or bank holding company, for purposes of paragraph (2)(A)(i), the taxpayer shall be treated as owning any stock of such bank or bank holding company which the taxpayer has an option to acquire. ^ "(B) DEFINITIONS.—For purposes of subparagraph (A)— "(i) BANK.—The term 'bank' has the meaning given If, \:T>r such term by section 581. .,' "(ii) BANK HOLDING COMPANY.—The term 'bank holding company' means a bank holding company (within the meaning of section 2(a) of the Bank Holding Compa•Ai / >

ny Ac|. Qf 1956).

12 USC 1841.

"(4) TREATMENT OF CERTAIN PREFERRED STOCK.—For purposes of determining whether the requirements of subparagraph (A) or (B) of paragraph (2) or of subparagraph (A) of paragraph (3) are met, stock described in section 1504(a)(4) shall not be taken into account. "(d) AVERAGE INDEBTEDNESS PERCENTAGE.—For purposes of this section— "(1) IN GENERAL.—Except as provided in paragraph (2), the ' term 'average indebtedness percentage' means the percentage obtained by dividing— "(A) the average amount (determined under regulations prescribed by the Secretary) of the portfolio indebtedness ol s with respect to the stock during the base period, by "(B) the average amount (determined under regulations prescribed by the Secretary) of the adjusted basis of the ^ stock during the base period. "(2) SPECIAL RULE WHERE STOCK NOT HELD THROUGHOUT BASE

PERIOD.—In the case of any stock which was not held by the taxpayer throughout the base period, paragraph (1) shall be applied as if the base period consisted only of that portion of the base period during which the stock was held by the taxpayer. "(3) PORTFOUO INDEBTEDNESS.—

"J^f *v '^

p

"(A) IN GENERAL.—The term 'portfolio indebtedness' means any indebtedness directly attributable to investment in the portfolio stock. "(B) CERTAIN AMOUNTS RECEIVED FROM TREATED AS INDEBTEDNESS.—For purposes of

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SHORT SALE

subparagraph (A), any amount received from a short sale shall be treated as indebtedness for the period beginning on the day on which such amount is received and ending on the day the short sale is closed. "(4) BASE PERIOD.—The term 'base period' means, with respect to any dividend, the shorter of— "(A) the period beginning on the ex-dividend date for the most recent previous dividend on the stock and ending on the day before the ex-dividend date for the dividend involved, or "(B) the 1-year period ending on the day before the exdividend date for the dividend involved.

"(e) REDUCTION IN DIVIDENDS RECEIVED DEDUCTION NOT TO EXCEED ALLOCABLE INTEREST.—Under regulations prescribed by the

Secretary, any reduction under this section in the amount allowable as a deduction under section 243, 244, or 245 with respect to any dividend shall not exceed the amount of any interest deduction

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Post, p. 577.

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/612

 98 STAT. 564

Post, p. 567.

PUBLIC LAW 98-369—JULY 18, 1984 (including any deductible short sale expense) allocable to such dividend. "(f) REGULATIONS.—The regulations prescribed for purposes of this section under section 7701(f) shall include regulations providing for the disallowance of interest deductions or other appropriate treatment (in lieu of reducing the dividend received deduction) where the obligor of the indebtedness is a person other than the person receiving the dividend." (b) CLERICAL AMENDMENT.—The table of sections for part VIII of subchapter B of chapter 1 is amended by inserting after the item relating to section 246 the following new item: "Sec. 246A. Dividends received deduction reduced where portfolio stock is debt financed."

26 USC 246A "°*^-

(c) EFFECTIVE DATE.—The amendments made by this section shall apply with respect to stock the holding period for which begins after the date of the enactment of this Act in taxable years ending after such date. SEC. 52. TREATMENT OF DIVIDENDS FROM REGULATED INVESTMENT COMPANIES.

26 USC 854.

of section 854(b) (relating to other dividends) is amended to read as follows:

(a) INCREASE IN REQUIRED AMOUNT OF DIVIDENDS.—Paragraph (1)

"(1) AMOUNT TREATED AS DIVIDEND.— "(A) DEDUCTION UNDER SECTION

243.—In any case in which— "(i) a dividend is received from a regulated investment company (other than a dividend to which subsection (a) applies), and "(ii) such investment company meets the requirements of section 852(a) for the taxable year during which it paid such dividend, then, in computing any deduction under section 243, there shall be taken into account only that portion of such dividend designated under this subparagraph by the regulated investment company. "(B) EXCLUSION UNDER SECTION II6.—If the

aggregate

dividends received by a regulated investment company during any taxable year are less than 95 percent of its gross income, then, in computing the exclusion under section 116, rules similar to the rules of subparagraph (A) shall apply. "(C) LIMITATION.—The aggregate amount which may be designated as dividends under subparagraph (A) or (B) shall not exceed the aggregate dividends received by the company for the taxable year." (b) CERTAIN DIVIDENDS NOT TAKEN INTO ACCOUNT FOR PURPOSES

OF COMPUTING DEDUCTION UNDER SECTION 243.—Subsection (b) of section 854 is amended by adding at the end thereof the following new paragraph: "(4) SPECIAL RULE FOR COMPUTING DEDUCTION UNDER SECTION

243.—For purposes of subparagraph (A) of paragraph (1), an amount shall be treated as a dividend for the purpose of paragraph (1) only if a deduction would have been allowable under section 243 to the regulated investment company determined— "(A) as if section 243 applied to dividends received by a regulated investment company,

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