Treasury Regulations · 26 CFR
§ 1.1272-2. Treatment of debt instruments purchased at a premium.
Regulation text, no changes From the eCFR, current as of October 15, 2026. The eCFR is an authoritative but unofficial editorial compilation of the Code of Federal Regulations; the official text is the annual CFR on govinfo. Compare it with this section on ecfr.gov (external site) or the official annual CFR on govinfo (external site).
Regulation under 26 U.S.C. § 1272
Cite as 26 CFR § 1.1272-2
At a glance
Read from the text and its source citation. Not part of the regulation.
- Status
- In the current eCFR
- Issued
- February 2, 1994 by T.D. 8517
- Issued under
- 26 U.S.C. § 1272
- Length
- 1,247 words · about 5 min to read
- Cross-references
- cites 6 Code sections and 3 regulations; cited by 5
(i) Facts. On July 1, 1994, A purchased at original issue, for $500, a debt instrument issued by Corporation X. The debt instrument matures on July 1, 1999, and calls for a single payment at maturity of $1,000. Under section 1273(a), the debt instrument has a stated redemption price at maturity of $1,000 and, thus, OID of $500. On July 1, 1996, when the debt instrument's adjusted issue price is $659.75, A sells the debt instrument to B for $750 in cash.
(ii) Acquisition premium fraction. Because the cost to B of the debt instrument is less than the amount payable on the debt instrument after the purchase date, but is greater than the debt instrument's adjusted issue price, B has paid an acquisition premium for the debt instrument. Accordingly, the daily portion of OID for any day that B holds the debt instrument is reduced by a fraction, the numerator of which is $90.25 (the excess of the cost of the debt instrument over its adjusted issue price) and the denominator of which is $340.25 (the excess of the sum of all payments after the purchase date over its adjusted issue price).
(i) Facts. On January 1, 1995, H purchases at original issue, for $1,000, a debt instrument issued by Corporation X. On July 1, 1997, when H's adjusted basis in the debt instrument is $1,000, Corporation X issues a new debt instrument with a stated redemption price at maturity of $750 to H in exchange for the old debt instrument. Assume that the issue price of the new debt instrument is $600. Thus, under section 1273(a), the debt instrument has OID of $150. The exchange qualifies as a recapitalization under section 368(a)(1)(E), with the consequence that, under sections 354 and 358, H recognizes no loss on the exchange and has an adjusted basis in the new debt instrument of $1,000.
(ii) Application of section 1272(c)(1). Under paragraphs (b)(1) and (b)(2) of this section, H purchases the new debt instrument at a premium of $250. Accordingly, under section 1272(c)(1), H is not required to include OID in income with respect to the new debt instrument.
(i) Facts. The facts are the same as in Example 2 of paragraph (c) of this section, except that H purchases the old debt instrument from another holder on July 1, 1995, and on July 1, 1997, H's adjusted basis in the old debt instrument is $700. Under section 1273(a), the new debt instrument is issued with OID of $150.
(ii) Application of section 1272(a)(7). Under paragraphs (b)(1) and (b)(3) of this section, H purchases the new debt instrument at an acquisition premium of $100. Accordingly, the daily portion of OID that is includible in H's income is reduced by the fraction determined under section 1272(a)(7).
(i) Facts. On July 1, 1994, D receives as a gift a debt instrument with a stated redemption price at maturity of $1,000 and an adjusted issue price of $800. On that date, the fair market value of the debt instrument is $900 and the donor's adjusted basis in the debt instrument is $950.
(ii) Application of section 1272(a)(7). Under paragraphs (b)(1), (b)(3), and (b)(6)(ii) of this section, D is considered to have purchased the debt instrument at an acquisition premium of $150. Accordingly, the daily portion of OID that is includible in D's income is reduced by the fraction determined under section 1272(a)(7).
[T.D. 8517, 59 FR 4814, Feb. 2, 1994]
Cross-references
Computed from the citations in the text of 26 CFR.
Code sections it cites
- § 1272 Current inclusion in income of original issue discount
- § 368 Definitions relating to corporate reorganizations
- § 732 Basis of distributed property other than money
- § 1015 Basis of property acquired by gifts and transfers in trust
- § 1273 Determination of amount of original issue discount
- § 354 Exchanges of stock and securities in certain reorganizations
Regulations it cites
- § 1.1273-1 Definition of OID.
- § 1.1275-1 Definitions.
- § 1.1272-3 Election by a holder to treat all interest on a debt instrument as OID.
Cited by 5 other regulations
- § 1.1271-0 Original issue discount; effective date; table of contents.
- § 1.1272-1 Current inclusion of OID in income.
- § 1.1273-1 Definition of OID.
- § 1.6045-1 Returns of information of brokers and barter exchanges.
- § 1.6049-9 Premium subject to reporting for a debt instrument acquired on or after January 1, 2014.
Amendment history
From the source citation at the end of the section, newest first. T.D. is a Treasury decision; FR is the Federal Register.
- Issued by T.D. 8517 (59 FR 4814)
Where it sits in 26 CFR
- Subchapter A Income tax
- Part 1 Income taxes
- Special Rules for Determining Capital Gains and Losses
Nearby sections
- § 1.1258-1 Netting rule for certain conversion transactions.
- § 1.1271-0 Original issue discount; effective date; table of contents.
- § 1.1271-1 Special rules applicable to amounts received on retirement, sale, or exchange of debt instruments.
- § 1.1272-1 Current inclusion of OID in income.
- § 1.1272-2 Treatment of debt instruments purchased at a premium.
- § 1.1272-3 Election by a holder to treat all interest on a debt instrument as OID.
- § 1.1273-1 Definition of OID.
- § 1.1273-2 Determination of issue price and issue date.
- § 1.1274-1 Debt instruments to which section 1274 applies.