Title 26, Internal Revenue CodeRelease 119-110
§1275 Other Definitions and Special Rules
Title 26 › Subtitle A — Income Taxes › CHAPTER 1 — NORMAL TAXES AND SURTAXES › Subchapter P — Capital Gains and Losses › PART V — SPECIAL RULES FOR BONDS AND OTHER DEBT INSTRUMENTS › Subpart A — Original Issue Discount › § 1275
Summary
Sets rules for what counts as a debt instrument, how its original issue discount (OID) is treated, and what information must be reported to the IRS. A “debt instrument” means things like bonds, notes, and certificates, but not certain annuity contracts covered by section 72 (for example, those based on life expectancy or some issued by insurance companies in cash-only, beneficiary-death, or qualified-plan deals). “Issue date” is the date the debt is first offered to the public, or the date sold or exchanged if not publicly offered. A “tax-exempt obligation” is one whose interest is not taxed under section 103 or another law. Debt given by a corporation to its shareholders is treated as if the corporation issued it for property. If a loan is tied to buying personal-use property, two other tax rules (sections 1274 and 483) do not apply. If that debt has OID and the borrower uses cash accounting, the OID can only be deducted when it is actually paid. Personal-use property means property the taxpayer mostly uses for non-business purposes. The IRS can require that OID amount and issue date appear on the instrument and can require issuers of public OID debt to give those details to the IRS. The IRS can also change tax treatment when special features (like changing rates, puts/calls, contingent payments) would defeat the law’s purpose.
Full Legal Text
Title 26, §1275
Internal Revenue Code, Source: USLM XML via OLRC
(a)Definitions
For purposes of this subpart—
(1)Debt instrument
(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 (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)Issue date
(A)Publicly offered debt instruments
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)Issues not publicly offered and not issued for 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)Treatment of obligations distributed by corporations
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)Treatment of borrower in the case of certain loans for personal use
(1)section 1274 and 483 not to apply
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)Original issue discount deducted on cash basis in certain cases
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,
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 offered
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 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 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)).
Legislative History
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.
Reference
Citations & Metadata
Citation
26 U.S.C. § 1275
Title 26, Internal Revenue Code
Last Updated
Sep 22, 2026
Release point: 119-110