U.S Code last checked for updates: Jul 21, 2024
§ 171.
Amortizable bond premium
(a)
General rule
In the case of any bond, as defined in subsection (d), the following rules shall apply to the amortizable bond premium (determined under subsection (b)) on the bond:
(1)
Taxable bonds
(2)
Tax-exempt bonds
(3)
Cross reference
(b)
Amortizable bond premium
(1)
Amount of bond premium
For purposes of paragraph (2), the amount of bond premium, in the case of the holder of any bond, shall be determined—
(A)
with reference to the amount of the basis (for determining loss on sale or exchange) of such bond,
(B)
(i)
with reference to the amount payable on maturity (or if it results in a smaller amortizable bond premium attributable to the period before the call date, with reference to the amount payable on the earlier call date), in the case of a bond described in subsection (a)(1), and
(ii)
with reference to the amount payable on maturity or on an earlier call date, in the case of a bond described in subsection (a)(2).
(C)
with adjustments proper to reflect unamortized bond premium, with respect to the bond, for the period before the date as of which subsection (a) becomes applicable with respect to the taxpayer with respect to such bond.
In no case shall the amount of bond premium on a convertible bond include any amount attributable to the conversion features of the bond.
(2)
Amount amortizable
(3)
Method of determination
(A)
In general
Except as provided in regulations prescribed by the Secretary, the determinations required under paragraphs (1) and (2) shall be made on the basis of the taxpayer’s yield to maturity determined by—
(i)
using the taxpayer’s basis (for purposes of determining loss on sale or exchange) of the obligation, and
(ii)
compounding at the close of each accrual period (as defined in section 1272(a)(5)).
(B)
Special rule where earlier call date is used
(4)
Treatment of certain bonds acquired in exchange for other property
(A)
In general
If—
(i)
a bond is acquired by any person in exchange for other property, and
(ii)
the basis of such bond is determined (in whole or in part) by reference to the basis of such other property,
for purposes of applying this subsection to such bond while held by such person, the basis of such bond shall not exceed its fair market value immediately after the exchange. A similar rule shall apply in the case of such bond while held by any other person whose basis is determined (in whole or in part) by reference to the basis in the hands of the person referred to in clause (i).
(B)
Special rule where bond exchanged in reorganization
(c)
Election as to taxable bonds
(1)
Eligibility to elect; bonds with respect to which election permitted
(2)
Manner and effect of election
(d)
Bond defined
(e)
Treatment as offset to interest payments
Except as provided in regulations, in the case of any taxable bond—
(1)
the amount of any bond premium shall be allocated among the interest payments on the bond under rules similar to the rules of subsection (b)(3), and
(2)
in lieu of any deduction under subsection (a), the amount of any premium so allocated to any interest payment shall be applied against (and operate to reduce) the amount of such interest payment.
For purposes of the preceding sentence, the term “taxable bond” means any bond the interest of which is not excludable from gross income.
(f)
Dealers in tax-exempt securities
(Aug. 16, 1954, ch. 736, 68A Stat. 61; Pub. L. 85–866, title I, § 13(a), Sept. 2, 1958, 72 Stat. 1610; Pub. L. 94–455, title XIX, §§ 1901(b)(1)(E), 1906(b)(13)(A), 1951(b)(5)(A), Oct. 4, 1976, 90 Stat. 1790, 1834, 1837; Pub. L. 99–514, title VI, § 643(a), title XVIII, § 1803(a)(11)(A), (B), (12)(A), Oct. 22, 1986, 100 Stat. 2285, 2795; Pub. L. 100–647, title I, § 1006(j)(1)(A), Nov. 10, 1988, 102 Stat. 3411; Pub. L. 108–357, title IV, § 413(c)(2), Oct. 22, 2004, 118 Stat. 1507; Pub. L. 113–295, div. A, title II, § 221(a)(29), Dec. 19, 2014, 128 Stat. 4041.)
cite as: 26 USC 171