§1283 Definitions and Special Rules

Summary

Defines what counts as short-term debt and how to handle the discount when you buy it. A "short-term obligation" is a bond or note that must be paid within 1 year from when it is issued, but it does not include tax-exempt obligations. "Acquisition discount" is the difference between the amount payable at maturity and what you paid for the obligation. The daily share of that discount is normally the total discount divided by the number of days after the day you bought it through and including the maturity day. You can instead elect a daily amount based on your yield to maturity with daily compounding, but that choice is final for that obligation. For short-term obligations that are not short-term Government obligations, rules treat original issue discount like acquisition discount and make related adjustments; you can elect to opt out of that treatment for obligations you buy on or after the first day of the first tax year the election applies, and the election continues until the IRS agrees to revoke it. The holder’s basis is increased by amounts included in income under these rules, and you won’t be required to include amounts already included before. Certain other discount rules do not apply to these obligations.