# 26 U.S.C. § 1273: Determination of amount of original issue discount Source: OLRC release point 119-134 . Cite pinpoints as 26 U.S.C. § 1273(a)(1). ## § 1273(a) General rule For purposes of this subpart— **§ 1273(a)(1) In general.** The term “original issue discount” means the excess (if any) of— **§ 1273(a)(1)(A)** the stated redemption price at maturity, over **§ 1273(a)(1)(B)** the issue price. **§ 1273(a)(2) Stated redemption price at maturity.** The term “stated redemption price at maturity” means the amount fixed by the last modification of the purchase agreement and includes interest and other amounts payable at that time (other than any interest based on a fixed rate, and payable unconditionally at fixed periodic intervals of 1 year or less during the entire term of the debt instrument). **§ 1273(a)(3) ¼ of 1 percent de minimis rule.** If the original issue discount determined under paragraph (1) is less than— **§ 1273(a)(3)(A)** ¼ of 1 percent of the stated redemption price at maturity, multiplied by **§ 1273(a)(3)(B)** the number of complete years to maturity, then the original issue discount shall be treated as zero. ## § 1273(b) Issue price For purposes of this subpart— **§ 1273(b)(1) Publicly offered debt instruments not issued for property.** In the case of any issue of debt instruments— **§ 1273(b)(1)(A)** publicly offered, and **§ 1273(b)(1)(B)** not issued for property, the issue price is the initial offering price to the public (excluding bond houses and brokers) at which price a substantial amount of such debt instruments was sold. **§ 1273(b)(2) Other debt instruments not issued for property.** In the case of any issue of debt instruments not issued for property and not publicly offered, the issue price of each such instrument is the price paid by the first buyer of such debt instrument. **§ 1273(b)(3) Debt instruments issued for property where there is public trading.** In the case of a debt instrument which is issued for property and which— **§ 1273(b)(3)(A)** is part of an issue a portion of which is traded on an established securities market, or **§ 1273(b)(3)(B)** **§ 1273(b)(3)(B)(i)** is issued for stock or securities which are traded on an established securities market, or **§ 1273(b)(3)(B)(ii)** to the extent provided in regulations, is issued for property (other than stock or securities) of a kind regularly traded on an established market, the issue price of such debt instrument shall be the fair market value of such property. **§ 1273(b)(4) Other cases.** Except in any case— **§ 1273(b)(4)(A)** to which paragraph (1), (2), or (3) of this subsection applies, or **§ 1273(b)(4)(B)** to which section 1274 applies, the issue price of a debt instrument which is issued for property shall be the stated redemption price at maturity. **§ 1273(b)(5) Property.** In applying this subsection, the term “property” includes services and the right to use property, but such term does not include money. ## § 1273(c) Special rules for applying subsection (b) For purposes of subsection (b)— **§ 1273(c)(1) Initial offering price; price paid by the first buyer.** The terms “initial offering price” and “price paid by the first buyer” include the aggregate payments made by the purchaser under the purchase agreement, including modifications thereof. **§ 1273(c)(2) Treatment of investment units.** In the case of any debt instrument and an option, security, or other property issued together as an investment unit— **§ 1273(c)(2)(A)** the issue price for such unit shall be determined in accordance with the rules of this subsection and subsection (b) as if it were a debt instrument, **§ 1273(c)(2)(B)** the issue price determined for such unit shall be allocated to each element of such unit on the basis of the relationship of the fair market value of such element to the fair market value of all elements in such unit, and **§ 1273(c)(2)(C)** the issue price of any debt instrument included in such unit shall be the portion of the issue price of the unit allocated to the debt instrument under subparagraph (B). ## Regulations - [Treas. Reg. § 1.1273-1](/26/reg/1.1273-1.md): Definition of OID. (interprets § 1273) - [Treas. Reg. § 1.1273-2](/26/reg/1.1273-2.md): Determination of issue price and issue date. (interprets § 1273) ## Final rules - [78 FR 7997](https://www.federalregister.gov/documents/2013/02/05/2013-02259/noncompensatory-partnership-options) (2013): Noncompensatory Partnership Options - [77 FR 56533](https://www.federalregister.gov/documents/2012/09/13/2012-22526/property-traded-on-an-established-market) (2012): Property Traded on an Established Market - [61 FR 30133](https://www.federalregister.gov/documents/1996/06/14/96-14918/debt-instruments-with-original-issue-discount-contingent-payments-anti-abuse-rule) (1996): Debt Instruments With Original Issue Discount; Contingent Payments; Anti-Abuse Rule ## Leading cases - [Custom Chrome v. Commissioner, 217 F.3d 1117 (9th Cir. 2000)](https://www.courtlistener.com/opinion/769343/custom-chrome-inc-and-subsidiaries-v-commissioner-of-internal-revenue/) - [Capital One Fin. Corp. v. Commissioner, 133 T.C. 136 (2009)](https://www.courtlistener.com/opinion/4697208/capital-one-fin-corp-v-commr/) - [Federal Nat'l Mortgage Ass'n v. Commissioner, 100 T.C. 541 (1993)](https://www.courtlistener.com/opinion/4694860/federal-natl-mortgage-assn-v-commissioner/) ## Connections Cites: § 1274 Determination of issue price in the case of certain debt instruments issued for property Cited by: § 108 Income from discharge of indebtedness; § 163 Interest; § 305 Distributions of stock and stock rights; § 483 Interest on certain deferred payments; § 811 Accounting provisions; § 834 Determination of taxable investment income; § 860G Other definitions and special rules; § 871 Tax on nonresident alien individuals; § 881 Tax on income of foreign corporations not connected with United States business; § 1274 Determination of issue price in the case of certain debt instruments issued for property; § 1275 Other definitions and special rules; § 1283 Definitions and special rules; § 1286 Tax treatment of stripped bonds; § 1288 Treatment of original issue discount on tax-exempt obligations; § 1351 Treatment of recoveries of foreign expropriation losses; § 1441 Withholding of tax on nonresident aliens; § 6049 Returns regarding payments of interest ## Amendments - 1984-07-18: [Pub. L. 98-369](/26/act/98-369.md), 98 Stat. 536 - 1986-10-22: [Pub. L. 99-514](/26/act/99-514.md), 100 Stat. 2794