§1283 Definitions and Special Rules

Summary

Sets rules for figuring and reporting the discount on short-term debt for tax purposes. It defines "short-term obligation" as a bond, note, or similar debt that matures within 1 year of issue, but excludes tax-exempt obligations defined in section 1275(a)(3). It defines "acquisition discount" as the amount by which the stated redemption price at maturity (see section 1273) is more than the buyer's cost. Normally the acquisition discount is spread evenly over each day from the day the taxpayer bought the obligation through its maturity. A taxpayer may instead choose an option to spread the discount using the taxpayer’s yield to maturity with daily compounding under rules the Secretary issues; that choice is irrevocable for that obligation. For nongovernmental short-term obligations, the rules use original issue discount instead of acquisition discount and adjust the daily calculations; a taxpayer can elect to avoid that treatment starting on the first day of the first taxable year the election covers, and that election continues unless the Secretary agrees to revoke it. The holder must raise the obligation’s tax basis by amounts included under section 1281, amounts already taxed are not taxed again, and sections 454(b) and paragraphs (3) and (4) of section 1271(a) do not apply to short-term obligations covered by section 1281.