§1283 Definitions and special rules

Summary

Sets rules for short-term debts and how to report any built-in gain as income. A "short-term obligation" is a bond, note, or similar debt that must be paid in full no more than 1 year after it is issued, but it does not include tax-exempt debt. "Acquisition discount" is the amount by which the redemption price at maturity is more than what you paid for the obligation. Normally you spread that acquisition discount evenly over the days from the day after you buy the obligation through the day it matures. You can instead choose to spread it using your yield to maturity with daily compounding, but that choice is final for that obligation. For short-term obligations that are not short-term Government obligations, the rules use original issue discount instead of acquisition discount when applying sections 1281 and 1282, unless you elect otherwise starting on the first day of the first taxable year the election applies; that election continues until the IRS allows revocation. Your basis must be increased by amounts included in income under section 1281, and section 1281 will not require re‑including amounts already included; sections 454(b) and certain parts of section 1271(a) do not apply to these short-term obligations.