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26 U.S.C. § 1271 — Treatment of amounts received on retirement or sale or exchange of debt instruments
Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule** For purposes of this title—
(1) **Retirement** — Amounts received by the holder on retirement of any debt instrument shall be considered as amounts received in exchange therefor.
(2) **Ordinary income on sale or exchange where intention to call before maturity**
(A) *In general* — If at the time of original issue there was an intention to call a debt instrument before maturity, any gain realized on the sale or exchange thereof which does not exceed an amount equal to—
(i) the original issue discount, reduced by
(ii) the portion of original issue discount previously includible in the gross income of any holder (without regard to section 1272(a)(7) (or the corresponding provisions of prior law)),
shall be treated as ordinary income.
(B) *Exceptions* — This paragraph shall not apply to—
(i) any tax-exempt obligation, or
(ii) any holder who has purchased the debt instrument at a premium.
(3) **Certain short-term Government obligations**
(A) *In general* — On the sale or exchange of any short-term Government obligation, any gain realized which does not exceed an amount equal to the ratable share of the acquisition discount shall be treated as ordinary income.
(B) *Short-term Government obligation* — For purposes of this paragraph, the term “short-term Government obligation” means any obligation of the United States or any of its possessions, or of a State or any political subdivision thereof, or of the District of Columbia, which has a fixed maturity date not more than 1 year from the date of issue. Such term does not include any tax-exempt obligation.
(C) *Acquisition discount* — For purposes of this paragraph, the term “acquisition discount” means the excess of the stated redemption price at maturity over the t
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Source file: Laws/federal/codes/united-states-code/title-26/section-1271-treatment-of-amounts-received-on-retirement-or-sale-or-exchange-of-debt--83d8e8a0ea.md
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Source location: Title 26, Chapter 1, § 1271; chapter-001-normal-taxes-and-surtaxes.md
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**(a) General rule** For purposes of this title—
(1) **Retirement** — Amounts received by the holder on retirement of any debt instrument shall be considered as amounts received in exchange therefor.
(2) **Ordinary income on sale or exchange where intention to call before maturity**
(A) *In general* — If at the time of original issue there was an intention to call a debt instrument before maturity, any gain realized on the sale or exchange thereof which does not exceed an amount equal to—
(i) the original issue discount, reduced by
(ii) the portion of original issue discount previously includible in the gross income of any holder (without regard to section 1272(a)(7) (or the corresponding provisions of prior law)),
shall be treated as ordinary income.
(B) *Exceptions* — This paragraph shall not apply to—
(i) any tax-exempt obligation, or
(ii) any holder who has purchased the debt instrument at a premium.
(3) **Certain short-term Government obligations**
(A) *In general* — On the sale or exchange of any short-term Government obligation, any gain realized which does not exceed an amount equal to the ratable share of the acquisition discount shall be treated as ordinary income.
(B) *Short-term Government obligation* — For purposes of this paragraph, the term “short-term Government obligation” means any obligation of the United States or any of its possessions, or of a State or any political subdivision thereof, or of the District of Columbia, which has a fixed maturity date not more than 1 year from the date of issue. Such term does not include any tax-exempt obligation.
(C) *Acquisition discount* — For purposes of this paragraph, the term “acquisition discount” means the excess of the stated redemption price at maturity over the taxpayer’s basis for the obligation.
(D) *Ratable share* — For purposes of this paragraph, except as provided in subparagraph (E), the ratable share of the acquisition discount is an amount which bears the same ratio to such discount as—
(i) the number of days which the taxpayer held the obligation, bears to
(ii) the number of days after the date the taxpayer acquired the obligation and up to (and including) the date of its maturity.
(E) *Election of accrual on basis of constant interest rate* — At the election of the taxpayer with respect to any obligation, the ratable share of the acquisition discount is the portion of the acquisition discount accruing while the taxpayer held the obligation 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.
An election under this subparagraph, once made with respect to any obligation, shall be irrevocable.
(4) **Certain short-term nongovernment obligations**
(A) *In general* — On the sale or exchange of any short-term nongovernment obligation, any gain realized which does not exceed an amount equal to the ratable share of the original issue discount shall be treated as ordinary income.
(B) *Short-term nongovernment obligation* — For purposes of this paragraph, the term “short-term nongovernment obligation” means any obligation which—
(i) has a fixed maturity date not more than 1 year from the date of the issue, and
(ii) is not a short-term Government obligation (as defined in paragraph (3)(B) without regard to the last sentence thereof).
(C) *Ratable share* — For purposes of this paragraph, except as provided in subparagraph (D), the ratable share of the original issue discount is an amount which bears the same ratio to such discount as—
(i) the number of days which the taxpayer held the obligation, bears to
(ii) the number of days after the date of original issue and up to (and including) the date of its maturity.
(D) *Election of accrual on basis of constant interest rate* — At the election of the taxpayer with respect to any obligation, the ratable share of the original issue discount is the portion of the original issue discount accruing while the taxpayer held the obligation determined (under regulations prescribed by the Secretary) on the basis of—
(i) the yield to maturity based on the issue price of the obligation, and
(ii) compounding daily.
Any election under this subparagraph, once made with respect to any obligation, shall be irrevocable.
**(b) Exception for certain obligations**
(1) **In general** — This section shall not apply to any obligation issued by a natural person before June 9, 1997.
(2) **Termination** — Paragraph (1) shall not apply to any obligation purchased (within the meaning of section 1272(d)(1)) 11 See References in Text note below. after June 8, 1997.
**(c) Double inclusion in income not required** This section and sections 1272 and 1286 shall not require the inclusion of any amount previously includible in gross income.
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Federal law — U.S. Code and appendices · legal_authorities
**(a) In general** In the case of any debt instrument to which this section applies, for purposes of this subpart, the issue price shall be—
(1) where there is adequate stated interest, the stated principal amount, or
(2) in any other case, the imputed principal amount.
**(b) Imputed principal amount** For purposes of this section—
(1) **In general** — Except as provided in paragraph (3), the imputed principal amount of any debt instrument shall be equal to the sum of the present values of all payments due under such debt instrument.
(2) **Determination of present value** — For purposes of paragraph (1), the present value of a payment shall be determined in the manner provided by regulations prescribed by the Secretary—
(A) as of the date of the sale or exchange, and
(B) by using a discount rate equal to the applicable Federal rate, compounded semiannually.
(3) **Fair market value rule in potentially abusive situations**
(A) *In general* — In the case of any potentially abusive situation, the imputed principal amount of any debt instrument received in exchange for property shall be the fair market value of such property adjusted to take into account other consideration involved in the transaction.
(B) *Potentially abusive situation defined* — For purposes of subparagraph (A), the term “potentially abusive situation” means—
(i) a tax shelter (as defined in section 6662(d)(2)(C)(ii)), and
(ii) any other situation which, by reason of—
(I) recent sales transactions,
(II) nonrecourse financing,
(III) financing with a term in excess of the economic life of the property, or
(IV) other circumstances,
is of a type which the Secretary specifies by regulations as having potential for tax avoidance.
**(c) Debt instruments
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Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule** There shall be allowed as a deduction all interest paid or accrued within the taxable year on indebtedness.
**(b) Installment purchases where interest charge is not separately stated**
(1) **General rule** — If personal property or educational services are purchased under a contract—
(A) which provides that payment of part or all of the purchase price is to be made in installments, and
(B) in which carrying charges are separately stated but the interest charge cannot be ascertained,
then the payments made during the taxable year under the contract shall be treated for purposes of this section as if they included interest equal to 6 percent of the average unpaid balance under the contract during the taxable year. For purposes of the preceding sentence, the average unpaid balance is the sum of the unpaid balance outstanding on the first day of each month beginning during the taxable year, divided by 12. For purposes of this paragraph, the term “educational services” means any service (including lodging) which is purchased from an educational organization described in section 170(b)(1)(A)(ii) and which is provided for a student of such organization.
(2) **Limitation** — In the case of any contract to which paragraph (1) applies, the amount treated as interest for any taxable year shall not exceed the aggregate carrying charges which are properly attributable to such taxable year.
**(c) Redeemable ground rents** For purposes of this subtitle, any annual or periodic rental under a redeemable ground rent (excluding amounts in redemption thereof) shall be treated as interest on an indebtedness secured by a mortgage.
**(d) Limitation on investment interest**
(1) **In general** — In the case of a taxpayer other than a corporation, the amount al
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Married individuals filing joint returns and surviving spouses** There is hereby imposed on the taxable income of—
(1) every married individual (as defined in section 7703) who makes a single return jointly with his spouse under section 6013, and
(2) every surviving spouse (as defined in section 2(a)),
a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $36,90015% of taxable income. Over $36,900 but not over $89,150$5,535, plus 28% of the excess over $36,900. Over $89,150 but not over $140,000$20,165, plus 31% of the excess over $89,150. Over $140,000 but not over $250,000$35,928.50, plus 36% of the excess over $140,000. Over $250,000$75,528.50, plus 39.6% of the excess over $250,000.
**(b) Heads of households** There is hereby imposed on the taxable income of every head of a household (as defined in section 2(b)) a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $29,60015% of taxable income. Over $29,600 but not over $76,400$4,440, plus 28% of the excess over $29,600. Over $76,400 but not over $127,500$17,544, plus 31% of the excess over $76,400. Over $127,500 but not over $250,000$33,385, plus 36% of the excess over $127,500. Over $250,000$77,485, plus 39.6% of the excess over $250,000.
**(c) Unmarried individuals (other than surviving spouses and heads of households)** There is hereby imposed on the taxable income of every individual (other than a surviving spouse as defined in section 2(a) or the head of a household as defined in section 2(b)) who is not a married individual (as defined in section 7703) a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $22,10015% of taxable income. Over $22,100 but not over $53,50
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Energy credit**
(1) **In general** — For purposes of section 46, except as provided in paragraphs (1)(B), (2)(B), and (3)(B) of subsection (c), the energy credit for any taxable year is the energy percentage of the basis of each energy property placed in service during such taxable year.
(2) **Energy percentage**
(A) *In general* — Except as provided in paragraphs (6) and (7), the energy percentage is—
(i) 6 percent in the case of—
(I) qualified fuel cell property,
(II) energy property described in clause (i) or (iii) of paragraph (3)(A) but only with respect to property the construction of which begins before January 1, 2025,
(III) energy property described in paragraph (3)(A)(ii),
(IV) qualified small wind energy property,
(V) waste energy recovery property,
(VI) energy storage technology,
(VII) qualified biogas property,
(VIII) microgrid controllers, and
(IX) energy property described in clauses (v) and (vii) of paragraph (3)(A), and
(ii) in the case of any energy property to which clause (i) does not apply, 0 percent.
(B) *Coordination with rehabilitation credit* — The energy percentage shall not apply to that portion of the basis of any property which is attributable to qualified rehabilitation expenditures.
(C) *Nonapplication of increases to energy percentage* — For purposes of energy property described in subparagraph (A)(ii), the energy percentage applicable to such property pursuant to such subparagraph shall not be increased or otherwise adjusted by any provision of this section.
(3) **Energy property** — For purposes of this subpart, the term “energy property” means any property—
(A) which is—
(i) equipment which uses solar energy to generate electricity, to he
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Failure to show information on debt instrument** In the case of a failure to set forth on a debt instrument the information required to be set forth on such instrument under section 1275(c)(1), unless it is shown that such failure is due to reasonable cause and not to willful neglect, the issuer shall pay a penalty of $50 for each instrument with respect to which such a failure exists.
**(b) Failure to furnish information to Secretary** Any issuer who fails to furnish information required under section 1275(c)(2) with respect to any issue of debt instruments on the date prescribed therefor (determined with regard to any extension of time for filing) shall pay a penalty equal to 1 percent of the aggregate issue price of such issue, unless it is shown that such failure is due to reasonable cause and not willful neglect. The amount of the penalty imposed under the preceding sentence with respect to any issue of debt instruments shall not exceed $50,000 for such issue.
**(c) Deficiency procedures not to apply** Subchapter B of chapter 63 (relating to deficiency procedures for income, estate, gift, and certain excise taxes) shall not apply in respect of the assessment or collection of any penalty imposed by this section.
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Requirements for qualification** A trust created or organized in the United States and forming part of a stock bonus, pension, or profit-sharing plan of an employer for the exclusive benefit of his employees or their beneficiaries shall constitute a qualified trust under this section—
(1) if contributions are made to the trust by such employer, or employees, or both, or by another employer who is entitled to deduct his contributions under section 404(a)(3)(B) (relating to deduction for contributions to profit-sharing and stock bonus plans), or by a charitable remainder trust pursuant to a qualified gratuitous transfer (as defined in section 664(g)(1)), for the purpose of distributing to such employees or their beneficiaries the corpus and income of the fund accumulated by the trust in accordance with such plan;
(2) if under the trust instrument it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees and their beneficiaries under the trust, for any part of the corpus or income to be (within the taxable year or thereafter) used for, or diverted to, purposes other than for the exclusive benefit of his employees or their beneficiaries (but this paragraph shall not be construed, in the case of a multiemployer plan, to prohibit the return of a contribution within 6 months after the plan administrator determines that the contribution was made by a mistake of fact or law (other than a mistake relating to whether the plan is described in section 401(a) or the trust which is part of such plan is exempt from taxation under section 501(a), or the return of any withdrawal liability payment determined to be an overpayment within 6 months of such determination));
(3) if the plan of which such trust is a part satisfies the requireme
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Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule** Proper adjustment in respect of the property shall in all cases be made—
(1) for expenditures, receipts, losses, or other items, properly chargeable to capital account, but no such adjustment shall be made—
(A) for—
(i) taxes or other carrying charges described in section 266; or
(ii) expenditures described in section 173 (relating to circulation expenditures),
for which deductions have been taken by the taxpayer in determining taxable income for the taxable year or prior taxable years; or
(B) for mortality, expense, or other reasonable charges incurred under an annuity or life insurance contract;
(2) in respect of any period since February 28, 1913, for exhaustion, wear and tear, obsolescence, amortization, and depletion, to the extent of the amount—
(A) allowed as deductions in computing taxable income under this subtitle or prior income tax laws, and
(B) resulting (by reason of the deductions so allowed) in a reduction for any taxable year of the taxpayer’s taxes under this subtitle (other than chapter 2, relating to tax on self-employment income), or prior income, war-profits, or excess-profits tax laws,
but not less than the amount allowable under this subtitle or prior income tax laws. Where no method has been adopted under section 167 (relating to depreciation deduction), the amount allowable shall be determined under the straight line method. Subparagraph (B) of this paragraph shall not apply in respect of any period since February 28, 1913, and before January 1, 1952, unless an election has been made under section 1020 (as in effect before the date of the enactment of the Tax Reform Act of 1976). Where for any taxable year before the taxable year 1932 the depletion allowance was based on discovery value or a pe
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Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule** When so provided by regulations promulgated by the Secretary in connection with the issue of obligations of the United States, no gain or loss shall be recognized on the surrender to the United States of obligations of the United States issued under chapter 31 of title 31 in exchange solely for other obligations issued under such chapter.
**(b) Application of original issue discount rules**
(1) **Exchanges involving obligations issued at a discount** — In any case in which gain has been realized but not recognized because of the provisions of subsection (a) (or so much of section 1031(b) as relates to subsection (a) of this section), to the extent such gain is later recognized by reason of a disposition or redemption of an obligation received in an exchange subject to such provisions, the first sentence of section 1271(c)(2) 11 See References in Text note below. shall apply to such gain as though the obligation disposed of or redeemed were the obligation surrendered to the Government in the exchange rather than the obligation actually disposed of or redeemed. For purposes of this paragraph and subpart A of part V of subchapter P, if the obligation surrendered in the exchange is a nontransferable obligation described in subsection (a) or (c) of section 454—
(A) the aggregate amount considered, with respect to the obligation surrendered, as ordinary income shall not exceed the difference between the issue price and the stated redemption price which applies at the time of the exchange, and
(B) the issue price of the obligation received in the exchange shall be considered to be the stated redemption price of the obligation surrendered in the exchange, increased by the amount of other consideration (if any) paid to the United States as a part of
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Federal law — U.S. Code and appendices · legal_authorities
### Statutory Notes
Section 1232, acts Aug. 16, 1954, ch. 736, 68A Stat. 326; Sept. 2, 1958, Pub. L. 85–866, title I, §§ 50(a), 51, 72 Stat. 1642, 1643; June 25, 1959, Pub. L. 86–69, § 3(e), 73 Stat. 140; Sept. 2, 1964, Pub. L. 88–563, § 5, 78 Stat. 845; Dec. 30, 1969, Pub. L. 91–172, title IV, § 413(a), (b), 83 Stat. 609, 611; Oct. 4, 1976, Pub. L. 94–455, title XIV, § 1402(b)(1)(S), (2), title XIX, §§ 1901(b)(3)(I), (14)(D), 1904(b)(10)(C), 90 Stat. 1732, 1793, 1796, 1817; Aug. 13, 1981, Pub. L. 97–34, title V, § 505(b), 95 Stat. 331; Sept. 3, 1982, Pub. L. 97–248, title II, §§ 231(c), 232(b), title III, § 310(b)(6), 96 Stat. 499, 501, 599; Jan. 12, 1983, Pub. L. 97–448, title III, § 306(a)(9)(B), (C)(i), (ii), 96 Stat. 2403, 2404; July 18, 1984, Pub. L. 98–369, div. A, title X, § 1001(b)(16), (d), (e), 98 Stat. 1012, related to bonds and other evidences of indebtedness. See section 1271 et seq. of this title.
Section 1232A, added Pub. L. 97–248, title II, § 231(a), Sept. 3, 1982, 96 Stat. 496; amended Pub. L. 98–369, div. A, title II, § 211(b)(17), July 18, 1984, 98 Stat. 756, related to original issue discount. See section 1271 et seq. of this title.
Section 1232B, added Pub. L. 97–248, title II, § 232(a), Sept. 3, 1982, 96 Stat. 499, related to stripped bonds. See [section 1286 of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section1286&num=0&edition=prelim).
#### Effective Date of Repeal
Repeal applicable to taxable years ending after July 18, 1984, see section 44 of Pub. L. 98–369, set out as an Effective Date note under [section 1271 of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section1271&num=0&edition=prelim).
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Original issue discount included in income on basis of constant interest rate**
(1) **General rule** — For purposes of this title, there shall be included in the gross income of the holder of any debt instrument having original issue discount, an amount equal to the sum of the daily portions of the original issue discount for each day during the taxable year on which such holder held such debt instrument.
(2) **Exceptions** — Paragraph (1) shall not apply to—
(A) *Tax-exempt obligations* — Any tax-exempt obligation.
(B) *United States savings bonds* — Any United States savings bond.
(C) *Short-term obligations* — Any debt instrument which has a fixed maturity date not more than 1 year from the date of issue.
(D) *Loans between natural persons*
(i) *In general* — Any loan made by a natural person to another natural person if—
(I) such loan is not made in the course of a trade or business of the lender, and
(II) the amount of such loan (when increased by the outstanding amount of prior loans by such natural person to such other natural person) does not exceed $10,000.
(ii) *Clause (i) not to apply where tax avoidance a principal purpose* — Clause (i) shall not apply if the loan has as 1 of its principal purposes the avoidance of any Federal tax.
(iii) *Treatment of husband and wife* — For purposes of this subparagraph, a husband and wife shall be treated as 1 person. The preceding sentence shall not apply where the spouses lived apart at all times during the taxable year in which the loan is made.
(3) **Determination of daily portions** — For purposes of paragraph (1), the daily portion of the original issue discount on any debt instrument shall be determined by allocating to each day in any accrual period its ratable port
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