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26 U.S.C. § 1276 — Disposition gain representing accrued market discount treated as ordinary income
Federal law — U.S. Code and appendices · legal_authorities
**(a) Ordinary income**
(1) **In general** — Except as otherwise provided in this section, gain on the disposition of any market discount bond shall be treated as ordinary income to the extent it does not exceed the accrued market discount on such bond. Such gain shall be recognized notwithstanding any other provision of this subtitle.
(2) **Dispositions other than sales, etc.** — For purposes of paragraph (1), a person disposing of any market discount bond in any transaction other than a sale, exchange, or involuntary conversion shall be treated as realizing an amount equal to the fair market value of the bond.
(3) **Treatment of partial principal payments**
(A) *In general* — Any partial principal payment on a market discount bond shall be included in gross income as ordinary income to the extent such payment does not exceed the accrued market discount on such bond.
(B) *Adjustment* — If subparagraph (A) applies to any partial principal payment on any market discount bond, for purposes of applying this section to any disposition of (or subsequent partial principal payment on) such bond, the amount of accrued market discount shall be reduced by the amount of such partial principal payment included in gross income under subparagraph (A).
(4) **Gain treated as interest for certain purposes** — Except for purposes of sections 103, 871(a), 881, 1441, 1442, and 6049 (and such other provisions as may be specified in regulations), any amount treated as ordinary income under paragraph (1) or (3) shall be treated as interest for purposes of this title.
**(b) Accrued market discount** For purposes of this section—
(1) **Ratable accrual** — Except as otherwise provided in this subsection or subsection (c), the accrued market discount on any bond shall be an amount whi
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Source file: Laws/federal/codes/united-states-code/title-26/section-1276-disposition-gain-representing-accrued-market-discount-treated-as-ordinar--d3a8b43a44.md
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Source location: Title 26, Chapter 1, § 1276; chapter-001-normal-taxes-and-surtaxes.md
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**(a) Ordinary income**
(1) **In general** — Except as otherwise provided in this section, gain on the disposition of any market discount bond shall be treated as ordinary income to the extent it does not exceed the accrued market discount on such bond. Such gain shall be recognized notwithstanding any other provision of this subtitle.
(2) **Dispositions other than sales, etc.** — For purposes of paragraph (1), a person disposing of any market discount bond in any transaction other than a sale, exchange, or involuntary conversion shall be treated as realizing an amount equal to the fair market value of the bond.
(3) **Treatment of partial principal payments**
(A) *In general* — Any partial principal payment on a market discount bond shall be included in gross income as ordinary income to the extent such payment does not exceed the accrued market discount on such bond.
(B) *Adjustment* — If subparagraph (A) applies to any partial principal payment on any market discount bond, for purposes of applying this section to any disposition of (or subsequent partial principal payment on) such bond, the amount of accrued market discount shall be reduced by the amount of such partial principal payment included in gross income under subparagraph (A).
(4) **Gain treated as interest for certain purposes** — Except for purposes of sections 103, 871(a), 881, 1441, 1442, and 6049 (and such other provisions as may be specified in regulations), any amount treated as ordinary income under paragraph (1) or (3) shall be treated as interest for purposes of this title.
**(b) Accrued market discount** For purposes of this section—
(1) **Ratable accrual** — Except as otherwise provided in this subsection or subsection (c), the accrued market discount on any bond shall be an amount which bears the same ratio to the market discount on such bond as—
(A) the number of days which the taxpayer held the bond, bears to
(B) the number of days after the date the taxpayer acquired the bond and up to (and including) the date of its maturity.
(2) **Election of accrual on basis of constant interest rate (in lieu of ratable accrual)**
(A) *In general* — At the election of the taxpayer with respect to any bond, the accrued market discount on such bond shall be the aggregate amount which would have been includible in the gross income of the taxpayer under section 1272(a) (determined without regard to paragraph (2) thereof) with respect to such bond for all periods during which the bond was held by the taxpayer if such bond had been—
(i) originally issued on the date on which such bond was acquired by the taxpayer,
(ii) for an issue price equal to the basis of the taxpayer in such bond immediately after its acquisition.
(B) *Coordination where bond has original issue discount* — In the case of any bond having original issue discount, for purposes of applying subparagraph (A)—
(i) the stated redemption price at maturity of such bond shall be treated as equal to its revised issue price, and
(ii) the determination of the portion of the original issue discount which would have been includible in the gross income of the taxpayer under section 1272(a) shall be made under regulations prescribed by the Secretary.
(C) *Election irrevocable* — An election under subparagraph (A), once made with respect to any bond, shall be irrevocable.
(3) **Special rule where partial principal payments** — In the case of a bond the principal of which may be paid in 2 or more payments, the amount of accrued market discount shall be determined under regulations prescribed by the Secretary.
**(c) Treatment of nonrecognition transactions** Under regulations prescribed by the Secretary—
(1) **Transferred basis property** — If a market discount bond is transferred in a nonrecognition transaction and such bond is transferred basis property in the hands of the transferee, for purposes of determining the amount of the accrued market discount with respect to the transferee—
(A) the transferee shall be treated as having acquired the bond on the date on which it was acquired by the transferor for an amount equal to the basis of the transferor, and
(B) proper adjustments shall be made for gain recognized by the transferor on such transfer (and for any original issue discount or market discount included in the gross income of the transferor).
(2) **Exchanged basis property** — If any market discount bond is disposed of by the taxpayer in a nonrecognition transaction and paragraph (1) does not apply to such transaction, any accrued market discount determined with respect to the property disposed of to the extent not theretofore treated as ordinary income under subsection (a)—
(A) shall be treated as accrued market discount with respect to the exchanged basis property received by the taxpayer in such transaction if such property is a market discount bond, and
(B) shall be treated as ordinary income on the disposition of the exchanged basis property received by the taxpayer in such exchange if such property is not a market discount bond.
(3) **Paragraph (1) to apply to certain distributions by corporations or partnerships** — For purposes of paragraph (1), if the basis of any market discount bond in the hands of a transferee is determined under section 732(a), or 732(b), such property shall be treated as transferred basis property in the hands of such transferee.
**(d) Special rules** Under regulations prescribed by the Secretary—
(1) rules similar to the rules of subsection (b) of section 1245 shall apply for purposes of this section; except that—
(A) paragraph (1) of such subsection shall not apply,
(B) an exchange qualifying under section 354(a), 355(a), or 356(a) (determined without regard to subsection (a) of this section) shall be treated as an exchange described in paragraph (3) of such subsection, and
(C) paragraph (3) of section 1245(b) shall be applied as if it did not contain a reference to section 351, and
(2) appropriate adjustments shall be made to the basis of any property to reflect gain recognized under subsection (a).
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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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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) General rule** For purposes of this subtitle, if a purchasing corporation makes an election under this section (or is treated under subsection (e) as having made such an election), then, in the case of any qualified stock purchase, the target corporation—
(1) shall be treated as having sold all of its assets at the close of the acquisition date at fair market value in a single transaction, and
(2) shall be treated as a new corporation which purchased all of the assets referred to in paragraph (1) as of the beginning of the day after the acquisition date.
**(b) Basis of assets after deemed purchase**
(1) **In general** — For purposes of subsection (a), the assets of the target corporation shall be treated as purchased for an amount equal to the sum of—
(A) the grossed-up basis of the purchasing corporation’s recently purchased stock, and
(B) the basis of the purchasing corporation’s nonrecently purchased stock.
(2) **Adjustment for liabilities and other relevant items** — The amount described in paragraph (1) shall be adjusted under regulations prescribed by the Secretary for liabilities of the target corporation and other relevant items.
(3) **Election to step-up the basis of certain target stock**
(A) *In general* — Under regulations prescribed by the Secretary, the basis of the purchasing corporation’s nonrecently purchased stock shall be the basis amount determined under subparagraph (B) of this paragraph if the purchasing corporation makes an election to recognize gain as if such stock were sold on the acquisition date for an amount equal to the basis amount determined under subparagraph (B).
(B) *Determination of basis amount* — For purposes of subparagraph (A), the basis amount determined under this subparagraph shall be an amount equal to
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Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule** Except as otherwise provided in this section or section 337, gain or loss shall be recognized to a liquidating corporation on the distribution of property in complete liquidation as if such property were sold to the distributee at its fair market value.
**(b) Treatment of liabilities** If any property distributed in the liquidation is subject to a liability or the shareholder assumes a liability of the liquidating corporation in connection with the distribution, for purposes of subsection (a) and section 337, the fair market value of such property shall be treated as not less than the amount of such liability.
**(c) Exception for liquidations which are part of a reorganization** For provision providing that this subpart does not apply to distributions in pursuance of a plan of reorganization, see section 361(c)(4).
**(d) Limitations on recognition of loss**
(1) **No loss recognized in certain distributions to related persons**
(A) *In general* — No loss shall be recognized to a liquidating corporation on the distribution of any property to a related person (within the meaning of section 267) if—
(i) such distribution is not pro rata, or
(ii) such property is disqualified property.
(B) *Disqualified property* — For purposes of subparagraph (A), the term “disqualified property” means any property which is acquired by the liquidating corporation in a transaction to which section 351 applied, or as a contribution to capital, during the 5-year period ending on the date of the distribution. Such term includes any property if the adjusted basis of such property is determined (in whole or in part) by reference to the adjusted basis of property described in the preceding sentence.
(2) **Special rule for certain property acquired in cert
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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) Inclusion in income as if bond and coupons were original issue discount bonds** If any person purchases a stripped bond or a stripped coupon, then such bond or coupon while held by such purchaser (or by any other person whose basis is determined by reference to the basis in the hands of such purchaser) shall be treated for purposes of this part as a bond originally issued on the purchase date and having an original issue discount equal to the excess (if any) of—
(1) the stated redemption price at maturity (or, in the case of coupon, the amount payable on the due date of such coupon), over
(2) such bond’s or coupon’s ratable share of the purchase price.
For purposes of paragraph (2), ratable shares shall be determined on the basis of their respective fair market values on the date of purchase.
**(b) Tax treatment of person stripping bond** For purposes of this subtitle, if any person strips 1 or more coupons from a bond and disposes of the bond or such coupon—
(1) such person shall include in gross income an amount equal to the sum of—
(A) the interest accrued on such bond while held by such person and before the time such coupon or bond was disposed of (to the extent such interest has not theretofore been included in such person’s gross income), and
(B) the accrued market discount on such bond determined as of the time such coupon or bond was disposed of (to the extent such discount has not theretofore been included in such person’s gross income),
(2) the basis of the bond and coupons shall be increased by the amount included in gross income under paragraph (1),
(3) the basis of the bond and coupons immediately before the disposition (as adjusted pursuant to paragraph (2)) shall be allocated among the items retained by such person and the items dispose
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Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule** Except as otherwise provided in this section, the net direct interest expense with respect to any market discount bond shall be allowed as a deduction for the taxable year only to the extent that such expense exceeds the portion of the market discount allocable to the days during the taxable year on which such bond was held by the taxpayer (as determined under the rules of section 1276(b)).
**(b) Disallowed deduction allowed for later years**
(1) **Election to take into account in later year where net interest income from bond**
(A) *In general* — If—
(i) there is net interest income for any taxable year with respect to any market discount bond, and
(ii) the taxpayer makes an election under this subparagraph with respect to such bond,
any disallowed interest expense with respect to such bond shall be treated as interest paid or accrued by the taxpayer during such taxable year to the extent such disallowed interest expense does not exceed the net interest income with respect to such bond.
(B) *Determination of disallowed interest expense* — For purposes of subparagraph (A), the amount of the disallowed interest expense—
(i) shall be determined as of the close of the preceding taxable year, and
(ii) shall not include any amount previously taken into account under subparagraph (A).
(C) *Net interest income* — For purposes of this paragraph, the term “net interest income” means the excess of the amount determined under paragraph (2) of subsection (c) over the amount determined under paragraph (1) of subsection (c).
(2) **Remainder of disallowed interest expense allowed for year of disposition**
(A) *In general* — Except as otherwise provided in this paragraph, the amount of the disallowed interest expense with resp
Source: Supplied U.S. Code snapshot — release unconfirmed · 26 U.S.C. § 1277
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Federal law — U.S. Code and appendices · legal_authorities
**(a) In general** For purposes of this part—
(1) **Market discount bond**
(A) *In general* — Except as provided in subparagraph (B), the term “market discount bond” means any bond having market discount.
(B) *Exceptions* — The term “market discount bond” shall not include—
(i) *Short-term obligations* — Any obligation with a fixed maturity date not exceeding 1 year from the date of issue.
(ii) *United States savings bonds* — Any United States savings bond.
(iii) *Installment obligations* — Any installment obligation to which section 453B applies.
(C) *Section 1277 not applicable to tax-exempt obligations* — For purposes of section 1277, the term “market discount bond” shall not include any tax-exempt obligation (as defined in section 1275(a)(3)).
(D) *Treatment of bonds acquired at original issue*
(i) *In general* — Except as otherwise provided in this subparagraph or in regulations, the term “market discount bond” shall not include any bond acquired by the taxpayer at its original issue.
(ii) *Treatment of bonds acquired for less than issue price* — Clause (i) shall not apply to any bond if—
(I) the basis of the taxpayer in such bond is determined under section 1012, and
(II) such basis is less than the issue price of such bond determined under subpart A of this part.
(iii) *Bonds acquired in certain reorganizations* — Clause (i) shall not apply to any bond issued pursuant to a plan of reorganization (within the meaning of section 368(a)(1)) in exchange for another bond having market discount. Solely for purposes of section 1276, the preceding sentence shall not apply if such other bond was issued on or before July 18, 1984 (the date of the enactment of section 1276) and if the bond issued pursuant to such plan
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Federal law — U.S. Code and appendices · legal_authorities
Page 2395
TITLE 26—INTERNAL REVENUE CODE
§ 1276
For purposes of the preceding sentence, any
person who makes a public offering of stripped
bonds (or stripped coupons) shall be treated as
the issuer of a publicly offered debt instru-
ment having original issue discount.
(3) Exceptions
This subsection shall not apply to any obli-
gation referred to in section 1272(a)(2) (relat-
ing to exceptions from current inclusion of
original issue discount).
(4) Cross reference
For civil penalty for failure to meet requirements
of this subsection, see section 6706.
(d) Regulation authority
The Secretary may prescribe regulations pro-
viding that where, by reason of varying rates of
interest, put or call options, indefinite matu-
rities, contingent payments, assumptions of
debt instruments, or other circumstances, the
tax treatment under this subpart (or section
163(e)) does not carry out the purposes of this
subpart (or section 163(e)), such treatment shall
be modified to the extent appropriate to carry
out the purposes of this subpart (or section
163(e)).
(Added and amended Pub. L. 98–369, div. A, title
I, §§ 41(a), 61(c)(2), July 18, 1984, 98 Stat. 540, 581;
Pub. L. 99–514, title XVIII, § 1804(f)(2)(A), Oct. 22,
1986, 100 Stat. 2805; Pub. L. 100–647, title I,
§ 1006(u)(4), Nov. 10, 1988, 102 Stat. 3427; Pub. L.
101–508, title XI, § 11325(a)(2), Nov. 5, 1990, 104
Stat. 1388–466; Pub. L. 106–554, § 1(a)(7) [title III,
§ 318(c)(1)], Dec. 21, 2000, 114 Stat. 2763, 2763A–645.)
Editorial Notes
AMENDMENTS
2000—Subsec. (a)(1)(B)(ii). Pub. L. 106–554, in introduc-
tory provisions, substituted ‘‘subchapter L (or by an
entity described in section 501(c) and exempt from tax
under section 501(a) which would be subject to tax
under subchapter L were it not so exem
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