Page:United States Statutes at Large Volume 100 Part 3.djvu/984

 100 STAT. 2792

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PUBLIC LAW 99-514—OCT. 22, 1986

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"(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) Paragraph (3) of section 1283(d) is amended by striking out "section 1271(a)(3)" and inserting in lieu thereof "paragraphs (3) and (4) of section 1271(a)". (2) ELECTION OF ACCRUAL ON BASIS OF CONSTANT INTEREST RATE FOR SHORT-TERM GOVERNMENT OBLIGATIONS.—

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(A) IN GENERAL.—Paragraph (3) of section 1271(a) (relating to certain short-term Government obligations) is amended by adding at the end thereof the following new subparagraph: "(E) ELECTION OF ACCRUAL ON BASIS OF CONSTANT INTEREST

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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." (B) TECHNICAL AMENDMENT.—Subparagraph (D) of section 1271(a)(3) is amended by striking out "this paragraph" and inserting in lieu thereof "this paragraph, except as provided in subparagraph (E)". (3) DEFINITION OF SHORT-TERM GOVERNMENT OBLIGATION.—

Subparagraph (B) of section 1271(a)(3) (defining short-term Government obligation) is amended to read as follows: "(B) SHORT-TERM GOVERNMENT OBLIGATION.—For purposes

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of this paragraph, the term 'short-term Government obliga-

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