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Internal Revenue Code · 26 U.S.C.

§ 1271. Treatment of amounts received on retirement or sale or exchange of debt instruments

In force Text current through Public Law 119-121 (October 9, 2026) release point 119-121

Official text, no changes From the Office of the Law Revision Counsel, release point 119-121 (current through Public Law 119-121 (October 9, 2026)). Compare it with the official text at uscode.house.gov (external site).

Cite as 26 U.S.C. § 1271

At a glance

Read from the text, the source credit and the official notes. Not part of the law.

Status
In force
Added
July 18, 1984 by Pub. L. 98–369
Last amended
March 23, 2018 by Pub. L. 115–141
Amendments
5 dated changes in the source credit
Length
3 subsections · 863 words · about 4 min to read
Defines
3 terms
Cross-references
cites 2; cited by 3 Code sections and 21 other regulations
Regulations
2 issued under this section
(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.

(Added Pub. L. 98–369, div. A, title I, § 41(a), July 18, 1984, 98 Stat. 531; amended Pub. L. 99–514, title XVIII, § 1803(a)(1)(A), (2), (3), Oct. 22, 1986, 100 Stat. 2791, 2792; Pub. L. 100–647, title I, § 1006(u)(4), Nov. 10, 1988, 102 Stat. 3427; Pub. L. 105–34, title X, § 1003(c)(1), Aug. 5, 1997, 111 Stat. 910; Pub. L. 113–295, div. A, title II, § 221(a)(86), Dec. 19, 2014, 128 Stat. 4049; Pub. L. 115–141, div. U, title IV, § 401(c)(1)(A), (D), (E), Mar. 23, 2018, 132 Stat. 1205.)

Terms defined here

Where the text says “the term … means”. Select a term to jump to its definition.

Regulations under this section

Treasury regulations (26 CFR) issued under § 1271

Cross-references

Computed from the citations in the text of Title 26 and 26 CFR.

This section cites 2 other sections

Cited by 3 Code sections

Cited in 21 regulations not issued under it

Amendment history

From the source credit and the official notes, newest first.

  1. Amended by Pub. L. 115–141Parts changed in 2018: (a)(2)(A)(ii) (a)(2)(B) (b)(1) (c)
  2. Amended by Pub. L. 113–295Parts changed in 2014: (c)
  3. Amended by Pub. L. 105–34Parts changed in 1997: (b)
  4. Amended by Pub. L. 100–647Parts changed in 1988: (a)(2)(A)(ii)
  5. Amended by Pub. L. 99–514Parts changed in 1986: (a)(3)(B) (a)(3)(D) (a)(3)(E) (a)(4)
  6. Added by Pub. L. 98–369

Where it sits in the Code

  1. Subtitle A Income Taxes
  2. Chapter 1 NORMAL TAXES AND SURTAXES
  3. Subchapter P Capital Gains and Losses
  4. Part V SPECIAL RULES FOR BONDS AND OTHER DEBT INSTRUMENTS
  5. Subpart A Original Issue Discount

Nearby sections

Official notes

The Law Revision Counsel's notes for this section (amendments, effective dates and related laws) are long, so they have their own page.