market discount bond
(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 of reorganization has the same term and the same interest rate as such other bond had. (iv) Treatment of certain transferred basis property For purposes of clause (i), if the adjusted basis of any bond in the hands of the taxpayer is determined by reference to the adjusted basis of such bond in the hands of a person who acquired such bond at its original issue, such bond shall be treated as acquired by the taxpayer at its original issue.