Title 26 — Internal Revenue CodeRelease 119-73
§249 Limitation on deduction of bond premium on repurchase
Title 26 › Subtitle Subtitle A— - Income Taxes › Chapter CHAPTER 1— - NORMAL TAXES AND SURTAXES › Subchapter Subchapter B— - Computation of Taxable Income › Part PART VIII— - SPECIAL DEDUCTIONS FOR CORPORATIONS › § 249
Summary
Companies cannot deduct premiums they pay to buy back debt that can be turned into their stock when the buyback price is more than the bond’s adjusted issue price plus a normal call premium for similar nonconvertible debt. The company can still take the deduction if it proves to the Secretary that the extra amount was for borrowing costs and not for the conversion feature. Adjusted issue price: the original issue price, adjusted for any discount the company already deducted or any premium it already included in income.
Full Legal Text
Title 26, §249
Internal Revenue Code — Source: USLM XML via OLRC
(a)No deduction shall be allowed to the issuing corporation for any premium paid or incurred upon the repurchase of a bond, debenture, note, or certificate or other evidence of indebtedness which is convertible into the stock of the issuing corporation, or a corporation in the same parent-subsidiary controlled group (within the meaning of section 1563(a)(1)) as the issuing corporation, to the extent the repurchase price exceeds an amount equal to the adjusted issue price plus a normal call premium on bonds or other evidences of indebtedness which are not convertible. The preceding sentence shall not apply to the extent that the corporation can demonstrate to the satisfaction of the Secretary that such excess is attributable to the cost of borrowing and is not attributable to the conversion feature.
(b)For purposes of subsection (a), the adjusted issue price is the issue price (as defined in section 1273(b) and 1274) increased by any amount of discount deducted before repurchase, or decreased by any amount of premium included in gross income before repurchase by the issuing corporation.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
Amendments
2014—Subsec. (a). Pub. L. 113–295, § 220(i), substituted “1563(a)(1))” for “1563(a)(1)”. Subsec. (b). Pub. L. 113–295, § 221(a)(43), which directed amendment of subsec. (b)(1) by striking out “, in the case of bonds or other evidences of indebtedness issued after February 28, 1913,” after “repurchase, or”, was executed by making the amendment in subsec. (b) to reflect the probable intent of Congress and the prior amendment by Pub. L. 112–95, § 1108(b). See 2012 Amendment note below. 2012—Subsec. (a). Pub. L. 112–95, § 1108(a), substituted “, or a corporation in the same parent-subsidiary controlled group (within the meaning of section 1563(a)(1) as” for “, or a corporation in control of, or controlled by,”. Subsec. (b). Pub. L. 112–95, § 1108(b), substituted “Adjusted issue price” for “Special rules” in heading and “For purposes of subsection (a),” for “For purposes of subsection (a)—” and par. (1) designation and heading, and “the adjusted issue price” for “The adjusted issue price”, and struck out par. (2), which defined “control” as having the meaning assigned to such term by section 368(c). 1984—Subsec. (b)(1). Pub. L. 98–369 substituted “section 1273(b) and 1274” for “section 1232(b)”. 1976—Subsec. (a). Pub. L. 94–455 struck out “or his delegate” after “Secretary”.
Statutory Notes and Related Subsidiaries
Effective Date
of 2014 AmendmentAmendment by section 221(a)(43) of Pub. L. 113–295 effective Dec. 19, 2014, subject to a
Savings Provision
, see section 221(b) of Pub. L. 113–295, set out as a note under section 1 of this title.
Effective Date
of 2012 Amendment Pub. L. 112–95, title XI, § 1108(c), Feb. 14, 2012, 126 Stat. 154, provided that: “The
Amendments
made by this section [amending this section] shall apply to repurchases after the date of the enactment of this Act [Feb. 14, 2012].”
Effective Date
of 1984 AmendmentAmendment by Pub. L. 98–369 applicable to taxable years ending after July 18, 1984, see section 44 of Pub. L. 98–369, set out as an
Effective Date
note under section 1271 of this title.
Effective Date
of 1976 AmendmentAmendment by Pub. L. 94–455 effective Feb. 1, 1977, see section 1906(d)(1) of Pub. L. 94–455, set out as a note under section 6013 of this title.
Effective Date
Pub. L. 91–172, title IV, § 414(c), Dec. 30, 1969, 83 Stat. 613, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: “The
Amendments
made by this section [enacting this section] shall apply to a convertible bond or other convertible evidence of indebtedness repurchased after
April 22, 1969, other than such a bond or other evidence of indebtedness repurchased pursuant to a binding obligation incurred on or before
April 22, 1969, to repurchase such bond or other evidence of indebtedness at a specified call premium, but no inference shall be drawn from the fact that section 249 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as added by subsection (a) of this section) does not apply to the repurchase of such convertible bond or other convertible evidence of indebtedness.”
Reference
Citations & Metadata
Citation
26 U.S.C. § 249
Title 26 — Internal Revenue Code
Last Updated
Apr 6, 2026
Release point: 119-73