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Title 26, Internal Revenue CodeRelease 119-110

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

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 D — Miscellaneous Provisions › § 1288

Last updated Sep 22, 2026|Official source

Summary

Requires that original issue discount (OID) on tax-exempt bonds be treated as accruing in two specific ways. For rules about interest under section 163, use the method in section 1272(a) but ignore paragraph (7) of that section. For figuring the bondholder’s adjusted basis, use section 1272(a) and include paragraph (7). OID is defined by reference to section 1273(a) without paragraph (3). When using sections 483 or 1274, the Secretary must set rules to adjust the federal rate to reflect that the interest is tax-exempt. “Tax-exempt obligation” means what section 1275(a)(3) says. For bonds that mature in one year or less, use rules like those in section 1283(b).

Full Legal Text

Title 26, §1288

Internal Revenue Code, Source: USLM XML via OLRC

(a)General rule
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)Definitions and special rules
For purposes of this section
(1) Original issue discount
(2)Tax-exempt obligation
The term “tax-exempt obligation” has the meaning given to such term by section 1275(a)(3).
(3)Short-term obligations
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

Sep 22, 2026

Release point: 119-110