§1037 — Title 26 Internal Revenue Code | U.S. Code

Summary

Under rules the Treasury Department sets when it issues government debt, you do not have to report a gain or loss if you give back certain U.S. government obligations issued under chapter 31 and get only other obligations from that same chapter in exchange. If you postponed reporting a gain because of that rule but later sell or redeem the obligation you received and the gain becomes taxable, the gain is treated as if it came from the original obligation you surrendered. If the surrendered obligation was a nontransferable one, the ordinary income you can report is limited to the difference between its issue price and its redemption price at the exchange, and the issue price of the new obligation is treated as that redemption price plus any extra money paid. If both obligations were transferable and issued at par, the new obligation’s issue price is treated as the same as the old one’s issue price plus any extra money paid. For exchanges that aren’t only for government obligations, and for basis rules, other tax-code sections apply.

Title 26, §1037

Internal Revenue Code — Source: USLM XML via OLRC

(a)When so provided by regulations promulgated by the Secretary in connection with the issue of obligations of the United States, no gain or loss shall be recognized on the surrender to the United States of obligations of the United States issued under chapter 31 of title 31 in exchange solely for other obligations issued under such chapter.

(b)(1)In any case in which gain has been realized but not recognized because of the provisions of subsection (a) (or so much of section 1031(b) as relates to subsection (a) of this section), to the extent such gain is later recognized by reason of a disposition or redemption of an obligation received in an exchange subject to such provisions, the first sentence of section 1271(c)(2) 11 See References in Text note below. shall apply to such gain as though the obligation disposed of or redeemed were the obligation surrendered to the Government in the exchange rather than the obligation actually disposed of or redeemed. For purposes of this paragraph and subpart A of part V of subchapter P, if the obligation surrendered in the exchange is a nontransferable obligation described in subsection (a) or (c) of section 454—

(A)the aggregate amount considered, with respect to the obligation surrendered, as ordinary income shall not exceed the difference between the issue price and the stated redemption price which applies at the time of the exchange, and

(B)the issue price of the obligation received in the exchange shall be considered to be the stated redemption price of the obligation surrendered in the exchange, increased by the amount of other consideration (if any) paid to the United States as a part of the exchange.

(2)In any case in which subsection (a) (or so much of section 1031(b) or (c) as relates to subsection (a) of this section) has applied to the exchange of a transferable obligation which was issued at not less than par for another transferable obligation, the issue price of the obligation received from the Government in the exchange shall be considered for purposes of applying subpart A of part V of subchapter P to be the same as the issue price of the obligation surrendered to the Government in the exchange, increased by the amount of other consideration (if any) paid to the United States as a part of the exchange.

(c)(1)For rules relating to the recognition of gain or loss in a case where subsection (a) would apply except for the fact that the exchange was not made solely for other obligations of the United States, see subsections (b) and (c) of section 1031.

(2)For rules relating to the basis of obligations of the United States acquired in an exchange for other obligations described in subsection (a), see subsection (d) of section 1031.

Notes & Related Subsidiaries

Editorial Notes

References in Text

section 1271(c), referred to in subsec. (b)(1), was repealed and section 1271(d) redesignated section 1271(c) by Pub. L. 115–141, div. U, title IV, § 401(c)(1)(A)(i), Mar. 23, 2018, 132 Stat. 1205.

Amendments

1984—Subsec. (b). Pub. L. 98–369, § 42(a)(11)(C), substituted “original issue discount rules” for “section 1232” in heading. Subsec. (b)(1). Pub. L. 98–369, § 42(a)(11)(A), (B), substituted “section 1271(c)(2)” for “section 1232(a)(2)(B)”, and “subpart A of part V of subchapter P” for “section 1232”. Subsec. (b)(2). Pub. L. 98–369, § 42(a)(11)(B), substituted “subpart A of part V of subchapter P” for “section 1232”. 1983—Subsec. (a). Pub. L. 97–452 substituted “chapter 31 of title 31” and “chapter” for “the Second Liberty Bond Act” and “Act”, respectively. 1976—Subsec. (b)(1). Pub. L. 94–455 substituted in introductory provisions “section 1232(a)(2)(B)” for “section 1232(a)(2)(A)” and in subpar. (A) “ordinary income” for “gain from the sale or exchange of property which is not a capital asset”.

Statutory Notes and Related Subsidiaries

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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

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note under section 1271 of this title.

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of 1976 AmendmentAmendment by Pub. L. 94–455 effective for taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94–455, set out as a note under section 2 of this title.

Effective Date

Pub. L. 86–346, title II, § 203, Sept. 22, 1959, 73 Stat. 624, provided that: “The

Amendments

made by this title [enacting this section and amending section 1031 of this title and section 742a of former Title 31, Money and Finance] shall be effective for taxable years ending after the date of enactment of this Act [Sept. 22, 1959].”

§1037 Certain Exchanges of United States Obligations

Summary

Title 26, §1037

Notes & Related Subsidiaries

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References in Text

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Statutory Notes and Related Subsidiaries

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