PRIA Logo™
Title 26 — Internal Revenue CodeRelease 119-73

§1288 Treatment of Original Issue Discount on Tax-exempt Obligations

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 D— Miscellaneous Provisions › § 1288

Last updated Apr 6, 2026|Official source

Summary

Original issue discount on a tax-exempt bond builds up under the same timing rules that apply to taxable bonds in section 1272(a), both for the interest rules of section 163 and for figuring the holder's adjusted basis. The terms come from the regular discount-bond rules, and the applicable federal rate is adjusted to reflect that the bond's interest is tax-exempt. Bonds maturing in 1 year or less follow rules similar to section 1283(b).

Full Legal Text

Title 26, §1288

Internal Revenue Code — Source: USLM XML via OLRC

(a)Original issue discount on any tax-exempt obligation shall be treated as accruing—
(1)for purposes of section 163, in the manner provided by section 1272(a) (determined without regard to paragraph (7) thereof), and
(2)for purposes of determining the adjusted basis of the holder, in the manner provided by section 1272(a) (determined with regard to paragraph (7) thereof).
(b)For purposes of this section—
(1)The term “original issue discount” has the meaning given to such term by section 1273(a) without regard to paragraph (3) thereof. In applying section 483 or 1274, under regulations prescribed by the Secretary, appropriate adjustments shall be made to the applicable Federal rate to take into account the tax exemption for interest on the obligation.
(2)The term “tax-exempt obligation” has the meaning given to such term by section 1275(a)(3).
(3)In applying this section to obligations with maturity of 1 year or less, rules similar to the rules of section 1283(b) shall apply.

Legislative History

Notes & Related Subsidiaries

Editorial Notes

Amendments

1988—Subsec. (a). Pub. L. 100–647 substituted “paragraph (7)” for “paragraph (6)” in pars. (1) and (2).

Statutory Notes and Related Subsidiaries

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

Section applicable to taxable years ending after July 18, 1984, and applicable to obligations issued after Sept. 3, 1982, and acquired after Mar. 1, 1984, see section 44 of Pub. L. 98–369, set out as a note under section 1271 of this title.

Reference

Citations & Metadata

Citation

26 U.S.C. § 1288

Title 26 — Internal Revenue Code

Last Updated

Apr 6, 2026

Release point: 119-73