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Title 26 — Internal Revenue CodeRelease 119-73

§1283 Definitions and Special Rules

Title 26 › Subtitle 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 C— Discount on Short-Term Obligations › § 1283

Last updated Apr 6, 2026|Official source

Summary

A short-term obligation is a bond, note, or other debt that matures no more than one year after it is issued, not counting tax-exempt obligations. Acquisition discount is the gap between what the debt pays at maturity and what you paid for it. Normally that discount counts as earned evenly each day from the day after you bought the debt through its maturity date. You can instead elect to accrue it based on your yield to maturity with daily compounding, but once you make that election for an obligation, you cannot undo it. For short-term debt that is not government debt, original issue discount is used instead of acquisition discount, though you can elect out of that treatment. Your basis in the debt goes up by amounts you already reported as income, so the same earnings are not taxed twice.

Full Legal Text

Title 26, §1283

Internal Revenue Code — Source: USLM XML via OLRC

(a)For purposes of this subpart—
(1)(A)Except as provided in subparagraph (B), the term “short-term obligation” means any bond, debenture, note, certificate, or other evidence of indebtedness which has a fixed maturity date not more than 1 year from the date of issue.
(B)The term “short-term obligation” shall not include any tax-exempt obligation (as defined in section 1275(a)(3)).
(2)The term “acquisition discount” means the excess of—
(A)the stated redemption price at maturity (as defined in section 1273), over
(B)the taxpayer’s basis for the obligation.
(b)For purposes of this subpart—
(1)Except as otherwise provided in this subsection, the daily portion of the acquisition discount is an amount equal to—
(A)the amount of such discount, divided by
(B)the number of days after the day on which the taxpayer acquired the obligation and up to (and including) the day of its maturity.
(2)(A)At the election of the taxpayer with respect to any obligation, the daily portion of the acquisition discount for any day is the portion of the acquisition discount accruing on such day determined (under regulations prescribed by the Secretary) on the basis of—
(i)the taxpayer’s yield to maturity based on the taxpayer’s cost of acquiring the obligation, and
(ii)compounding daily.
(B)An election under subparagraph (A), once made with respect to any obligation, shall be irrevocable.
(c)(1)In the case of any short-term obligation which is not a short-term Government obligation (as defined in section 1271(a)(3)(B))—
(A)section 1281 and 1282 shall be applied by taking into account original issue discount in lieu of acquisition discount, and
(B)appropriate adjustments shall be made in the application of subsection (b) of this section.
(2)(A)A taxpayer may make an election under this paragraph to have paragraph (1) not apply to all obligations acquired by the taxpayer on or after the first day of the first taxable year to which such election applies.
(B)An election under this paragraph shall apply to the taxable year for which it is made and for all subsequent taxable years, unless the taxpayer secures the consent of the Secretary to the revocation of such election.
(d)(1)The basis of any short-term obligation in the hands of the holder thereof shall be increased by the amount included in his gross income pursuant to section 1281.
(2)section 1281 shall not require the inclusion of any amount previously includible in gross income.
(3)section 454(b) and paragraphs (3) and (4) of section 1271(a) shall not apply to any short-term obligation to which section 1281 applies.

Legislative History

Notes & Related Subsidiaries

Editorial Notes

Amendments

1986—Subsec. (d)(3). Pub. L. 99–514 substituted “paragraphs (3) and (4) of section 1271(a)” for “section 1271(a)(3)”.

Statutory Notes and Related Subsidiaries

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

Section applicable to taxable years ending after July 18, 1984, and to obligations acquired after that date, 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. § 1283

Title 26 — Internal Revenue Code

Last Updated

Apr 6, 2026

Release point: 119-73