§1275 — Title 26 Internal Revenue Code | U.S. Code

Summary

Sets rules for which financial promises count as a "debt instrument," how to pick their original issue date, when interest is tax-exempt, and what details issuers must give the IRS. A "debt instrument" means a bond, debenture, note, certificate, or similar evidence of owing money, but it does not include certain annuity contracts covered by section 72 (those that depend on a person’s life or are issued by certain insurers in cash-only, beneficiary, or qualified-plan transactions). The "date of original issue" is the public-issue date for publicly offered paper, the sale date if section 1273(b)(2) applies, or otherwise the date it was issued in a sale or exchange. A "tax-exempt obligation" is one whose interest is not taxed under section 103 or is otherwise exempt. The law also treats corporate debt given for stock as if it were issued for property. Rules in sections 1274 and 483 do not apply when the debt is for personal-use property, and there is a special rule for OID on debt tied to buying or holding personal-use property when the obligor uses the cash method. The Treasury can require that OID amount and issue date be reported, and issuers of publicly offered OID debt must give the IRS the OID amount, issue date, and other required info. The Treasury can adjust tax rules by regulation when special features (like variable rates, put/call options, contingent payments, or unclear maturities) make the normal treatment inappropriate. Penalties can apply for failing to meet the reporting rules.

Title 26, §1275

Internal Revenue Code — Source: USLM XML via OLRC

(a)For purposes of this subpart—

(1)(A)Except as provided in subparagraph (B), the term “debt instrument” means a bond, debenture, note, or certificate or other evidence of indebtedness.

(B)The term “debt instrument” shall not include any annuity contract to which section 72 applies and which—

(i)depends (in whole or in substantial part) on the life expectancy of 1 or more individuals, or

(ii)is issued by an insurance company subject to tax under subchapter L (or by an entity described in section 501(c) and exempt from tax under section 501(a) which would be subject to tax under subchapter L were it not so exempt)—

(I)in a transaction in which there is no consideration other than cash or another annuity contract meeting the 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.

(2)(A)In the case of 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)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)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)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)Any debt obligation of a corporation distributed by such corporation with respect to its stock shall be treated as if it had been issued by such corporation for property.

(b)(1)In the case of the obligor under any debt instrument given in consideration for the sale or exchange of property, section 1274 and 483 shall not apply if such property is personal use property.

(2)In the case of any debt instrument, if—

(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,

(3)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)(1)(A)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,

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

(3)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)For civil penalty for failure to meet requirements of this subsection, see section 6706.

(d)The Secretary may prescribe regulations 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)).

Notes & Related Subsidiaries

Editorial Notes

Amendments

2000—Subsec. (a)(1)(B)(ii). Pub. L. 106–554, in introductory provisions, substituted “subchapter L (or by an entity described in section 501(c) and exempt from tax under section 501(a) which would be subject to tax under subchapter L were it not so exempt)” for “subchapter L”. 1990—Subsec. (a)(4), (5). Pub. L. 101–508 redesignated par. (5) as (4) and struck out former par. (4) which related to a special rule for determination of issue price in case of exchange of debt instruments in reorganization. 1988—Subsec. (a)(4)(B)(ii)(I). Pub. L. 100–647 substituted “subsection (a)(7)” for “subsection (a)(6)”. 1986—Subsec. (a)(4), (5). Pub. L. 99–514 redesignated par. (4), relating to treatment of obligations distributed to corporations, as (5), and substituted “by corporations” for “to corporations” in heading. 1984—Subsec. (a)(4). Pub. L. 98–369, § 61(c)(2), added par. (4) relating to treatment of obligations distributed to corporations.

Statutory Notes and Related Subsidiaries

Effective Date

of 2000 Amendment Pub. L. 106–554, § 1(a)(7) [title III, § 318(c)(2)], Dec. 21, 2000, 114 Stat. 2763, 2763A–645, provided that: “The amendment made by this subsection [amending this section] shall take effect as if included in the

Amendments

made by section 41 of the Tax Reform Act of 1984 [Pub. L. 98–369, div. A].”

Effective Date

of 1990 AmendmentAmendment by Pub. L. 101–508 applicable, with certain exceptions, to debt instruments issued and stock transferred after Oct. 1, 1990, in satisfaction of any indebtedness, see section 11325(c) of Pub. L. 101–508, set out as a note under section 108 of this title.

Effective Date

of 1988 AmendmentAmendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.

Effective Date

of 1986 AmendmentAmendment by Pub. L. 99–514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as a note under section 48 of this title.

Effective Date

of 1984 AmendmentAmendment by Pub. L. 98–369 applicable with respect to distributions declared Mar. 15, 1984, in taxable years ending after that date, see section 61(e)(3) of Pub. L. 98–369, set out as a note under section 312 of this title.

Effective Date

Section applicable to taxable years ending after

July 18, 1984, but subsec. (c) of this section effective on the day 30 days after

July 18, 1984, see section 44 of Pub. L. 98–369, set out as a note under section 1271 of this title. Plan

Amendments

Not Required Until January 1, 1989For provisions directing that if any

Amendments

made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title.

§1275 Other Definitions and Special Rules

Summary

Title 26, §1275

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Statutory Notes and Related Subsidiaries

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Citations & Metadata