§171 — Amortizable bond premium

60 cases·2 followed·1 distinguished·2 criticized·1 overruled·54 cited—3% support

Statute Text — 26 U.S.C. §171

(a)General rule

In the case of any bond, as defined in subsection (d), the following rules shall apply to the amortizable bond premium (determined under subsection (b)) on the bond:

(1)Taxable bonds

In the case of a bond (other than a bond the interest on which is excludable from gross income), the amount of the amortizable bond premium for the taxable year shall be allowed as a deduction.

(2)Tax-exempt bonds

In the case of any bond the interest on which is excludable from gross income, no deduction shall be allowed for the amortizable bond premium for the taxable year.

(3)Cross reference

For adjustment to basis on account of amortizable bond premium, see section 1016(a)(5).

(b)Amortizable bond premium

(1)Amount of bond premium

For purposes of paragraph (2), the amount of bond premium, in the case of the holder of any bond, shall be determined—

(A)

with reference to the amount of the basis (for determining loss on sale or exchange) of such bond,

(B)

(i)

with reference to the amount payable on maturity (or if it results in a smaller amortizable bond premium attributable to the period before the call date, with reference to the amount payable on the earlier call date), in the case of a bond described in subsection (a)(1), and

(ii)

with reference to the amount payable on maturity or on an earlier call date, in the case of a bond described in subsection (a)(2).

(C)

with adjustments proper to reflect unamortized bond premium, with respect to the bond, for the period before the date as of which subsection (a) becomes applicable with respect to the taxpayer with respect to such bond.

In no case shall the amount of bond premium on a convertible bond include any amount attributable to the conversion features of the bond.

(2)Amount amortizable

The amortizable bond premium of the taxable year shall be the amount of the bond premium attributable to such year. In the case of a bond to which paragraph (1)(B)(i) applies and which has a call date, the amount of bond premium attributable to the taxable year in which the bond is called shall include an amount equal to the excess of the amount of the adjusted basis (for determining loss on sale or exchange) of such bond as of the beginning of the taxable year over the amount received on redemption of the bond or (if greater) the amount payable on maturity.

(3)Method of determination

(A)In general

Except as provided in regulations prescribed by the Secretary, the determinations required under paragraphs (1) and (2) shall be made on the basis of the taxpayer’s yield to maturity determined by—

(i)

using the taxpayer’s basis (for purposes of determining loss on sale or exchange) of the obligation, and

(ii)

compounding at the close of each accrual period (as defined in section 1272(a)(5)).

(B)Special rule where earlier call date is used

For purposes of subparagraph (A), if the amount payable on an earlier call date is used under paragraph (1)(B)(i) in determining the amortizable bond premium attributable to the period before the earlier call date, such bond shall be treated as maturing on such date for the amount so payable and then reissued on such date for the amount so payable.

(4)Treatment of certain bonds acquired in exchange for other property

(A)In general

If—

(i)

a bond is acquired by any person in exchange for other property, and

(ii)

the basis of such bond is determined (in whole or in part) by reference to the basis of such other property,

for purposes of applying this subsection to such bond while held by such person, the basis of such bond shall not exceed its fair market value immediately after the exchange. A similar rule shall apply in the case of such bond while held by any other person whose basis is determined (in whole or in part) by reference to the basis in the hands of the person referred to in clause (i).

(B)Special rule where bond exchanged in reorganization

Subparagraph (A) shall not apply to an exchange by the taxpayer of a bond for another bond if such exchange is a part of a reorganization (as defined in section 368). If any portion of the basis of the taxpayer in a bond transferred in such an exchange is not taken into account in determining bond premium by reason of this paragraph, such portion shall not be taken into account in determining the amount of bond premium on any bond received in the exchange.

(c)Election as to taxable bonds

(1)Eligibility to elect; bonds with respect to which election permitted

In the case of bonds the interest on which is not excludible from gross income, this section shall apply only if the taxpayer has so elected.

(2)Manner and effect of election

The election authorized under this subsection shall be made in accordance with such regulations as the Secretary shall prescribe. If such election is made with respect to any bond (described in paragraph (1)) of the taxpayer, it shall also apply to all such bonds held by the taxpayer at the beginning of the first taxable year to which the election applies and to all such bonds thereafter acquired by him and shall be binding for all subsequent taxable years with respect to all such bonds of the taxpayer, unless, on application by the taxpayer, the Secretary permits him, subject to such conditions as the Secretary deems necessary, to revoke such election. In the case of bonds held by a common trust fund, as defined in section 584(a), the election authorized under this subsection shall be exercisable with respect to such bonds only by the common trust fund. In case of bonds held by an estate or trust, the election authorized under this subsection shall be exercisable with respect to such bonds only by the fiduciary.

(d)Bond defined

For purposes of this section, the term “bond” means any bond, debenture, note, or certificate or other evidence of indebtedness, but does not include any such obligation which constitutes stock in trade of the taxpayer or any such obligation of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or any such obligation held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business.

(e)Treatment as offset to interest payments

Except as provided in regulations, in the case of any taxable bond—

(1)

the amount of any bond premium shall be allocated among the interest payments on the bond under rules similar to the rules of subsection (b)(3), and

(2)

in lieu of any deduction under subsection (a), the amount of any premium so allocated to any interest payment shall be applied against (and operate to reduce) the amount of such interest payment.

For purposes of the preceding sentence, the term “taxable bond” means any bond the interest of which is not excludable from gross income.

(f)Dealers in tax-exempt securities

For special rules applicable, in the case of dealers in securities, with respect to premium attributable to certain wholly tax-exempt securities, see section 75.

Treasury Regulations

Treas. Reg. §Treas. Reg. §1.171-1 Bond premium
Treas. Reg. §Treas. Reg. §1.171-1(a) Overview—(1) In general.
Treas. Reg. §Treas. Reg. §1.171-1(b) Scope—(1) In general.
Treas. Reg. §Treas. Reg. §1.171-1(c) General rule—(1) Tax-exempt obligations.
Treas. Reg. §Treas. Reg. §1.171-1(d) Determination of bond premium—(1) In general.
Treas. Reg. §Treas. Reg. §1.171-1(e) Basis.
Treas. Reg. §Treas. Reg. §1.171-1(f) Examples.
Treas. Reg. §Treas. Reg. §1.171-1(i) §1.171-1(i)
Treas. Reg. §Treas. Reg. §1.171-1(v) A bond issued before September 28, 1985, unless the bond bears interest and was issued by a corporation or by a government or political subdivision thereof.
Treas. Reg. §Treas. Reg. §1.171-2 Amortization of bond premium
Treas. Reg. §Treas. Reg. §1.171-2(a) Offsetting qualified stated interest with premium—(1) In general.
Treas. Reg. §Treas. Reg. §1.171-2(b) Adjusted acquisition price.
Treas. Reg. §Treas. Reg. §1.171-2(c) Examples.
Treas. Reg. §Treas. Reg. §1.171-2(i) Step one: Determine the holder's yield.
Treas. Reg. §Treas. Reg. §1.171-3 Special rules for certain bonds
Treas. Reg. §Treas. Reg. §1.171-3(a) Variable rate debt instruments.
Treas. Reg. §Treas. Reg. §1.171-3(b) Inflation-indexed debt instruments.
Treas. Reg. §Treas. Reg. §1.171-3(c) Yield and remaining payment schedule of certain bonds subject to contingencies—(1) Applicability.
Treas. Reg. §Treas. Reg. §1.171-3(d) Remote and incidental contingencies.
Treas. Reg. §Treas. Reg. §1.171-3(e) Examples.
Treas. Reg. §Treas. Reg. §1.171-4 Election to amortize bond premium on taxable bonds
Treas. Reg. §Treas. Reg. §1.171-4(a) Time and manner of making the election—(1) In general.
Treas. Reg. §Treas. Reg. §1.171-4(b) Scope of election.
Treas. Reg. §Treas. Reg. §1.171-4(c) Election to amortize made in a subsequent taxable year—(1) In general.
Treas. Reg. §Treas. Reg. §1.171-4(d) Revocation of election.

60 Citing Cases

Exelon Corporation and Subsidiaries, Petitioner · 2016

171.002 (West 2000). In addition to its corporate income tax, Georgia levied a graduated corporate net worth tax, ranging from $10 to $5,000. Ga. Code Ann. sec. 48-13-73 (2013). - 26 - by 2030. Deloitte did not analyze in its appraisal reports how a change in a capacity factor might influence the future fair market value ofthe assets at issue

Exelon Corporation, as Successor by Merger to Unicom Corporation and Subsidiaries, Petitioner · 2016

PPL Corporation and Subsidiaries, Petitioner 135 T.C. No. 15 · 2010

As petitioner points out : "the operation of section 171 TCGA and section 179 TCGA is substantively similar to the gain deferral and recognition rules relating to intercompany transfers in our consolidated return regulations, section 1 .1502-13, Income Tax Regs ." Petitioner argues, however, that "[t]he Windfall Tax statute was not designed on the basis of Section 179 TCGA .

PPL Corp. & Subsidiaries v. Commissioner 135 T.C. 304 · 2010

he U.K. Taxation of Chargeable Gains Act, 1992 (TCGA), companies within a group (generally, a parent and its 75-percent-owned subsidiaries) may transfer assets between members of the group without incurring a capital gains charge. The effect of TCGA sec. 171 is to defer the chargeable gain on asset appreciation -until a group member transfers the asset outside the group, at which point the gain becomes chargeable to that transferor. Under the TCGA as originally enacted, however, the transfer out

David J. & Sharon A. Felt, Petitioner T.C. Memo. 2009-245 · 2009

T,Forfeitu.res for .failure to pay franchise tax are governed by the .Texas-Tax-Code,_section 171 .251, which reads (now and in 1989): : ."The comptroller shall forfeit the Ali, corporate privileges of"a corporation on which the franchisetaxii is` 'imposed if"` °and lists~~!

Advanced Delivery and Chemical Systems Nevada, Inc., Petitioner T.C. Memo. 2003-250 · 2003

171.001(a)(1), (b)(3) (West 2002) (imposing the Texas franchise tax on various business entities, but not on partnerships). The six specific steps in ADCS’ reorganization, all occurring between January 18 and January 22, 1996, are reflected below: 1. ADCS-Limited was formed as a Texas limited partnership; 2. Advanced Delivery & Chemical System

General Motors Corporation and Subsidiaries, Petitioner 112 T.C. No. 19 · 1999

S does not elect under section 171 to amortize the $10 premium.

General Motors Corp. & Subsidiaries v. Commissioner 112 T.C. 270 · 1999

S does not elect under section 171 to amortize the $10 premium.

Reynolds Metals Company and Consolidated Subsidiaries, Petitioner 105 T.C. No. 20 · 1995

he debentures. Such an approach has been suggested, albeit implicitly, by National Can Corp. v. United States, supra, and Honeywell Inc. v. Commissioner, 87 T.C. 624 (1986) (in the context of disallowing the parent a deduction for bond premium under sec. 171);7 see also Clark Equipment Co. v. United States, 912 F.2d 113 (6th Cir. 1990); Strasen, "The Taxation of Convertible and Other Equity-Flavored Debt Instruments," 65 Taxes 937 (1987); Committee on Taxation of International Finance and Invest

Reynolds Metals Co. v. Commissioner 105 T.C. 304 · 1995

he debentures. Such an approach has been suggested, albeit implicitly, by National Can Corp. v. United States, supra, and Honeywell Inc. v. Commissioner, 87 T.C. 624 (1986) (in the context of disallowing the parent a deduction for bond premium under sec. 171); see also Clark Equipment Co. v. United States, 912 F.2d 113 (6th Cir. 1990); Strasen, “The Taxation of Convertible and Other Equity-Flavored Debt Instruments,” 65 Taxes 937 (1987); Committee on Taxation of International Finance and Investm

In the Matter of: Jon Amberson 54 F.4th 240 · Cir.

Roberts & Porter, Inc. v. Commissioner 37 T.C. 23 · 1961

Ades v. Commissioner 38 T.C. 501 · 1962

Twinam v. Commissioner 22 T.C. 83 · 1954

Honeywell Inc. v. Commissioner 87 T.C. 624 · 1986

Fairbanks v. Commissioner 15 T.C. 62 · 1950

Vahlco Corp. v. Commissioner 97 T.C. 428 · 1991

Goldfine v. Commissioner 80 T.C. 843 · 1983

Holladay v. Commissioner 72 T.C. 571 · 1979

Seaboard Coffee Service, Inc. v. Commissioner 71 T.C. 465 · 1978

Sydnes v. Commissioner 68 T.C. 170 · 1977

Daniel v. Commissioner 56 T.C. 655 · 1971

Mirsky v. Commissioner 56 T.C. 664 · 1971

Starr v. Commissioner 46 T.C. 450 · 1966

Dixon v. Commissioner 44 T.C. 709 · 1965

Sexton v. Commissioner 42 T.C. 1094 · 1964

Lieb v. Commissioner 40 T.C. 161 · 1963

Industrial Research Products, Inc. v. Commissioner 40 T.C. 578 · 1963

Estate of Buckley v. Commissioner 37 T.C. 664 · 1962

Maysteel Products, Inc. v. Commissioner 33 T.C. 1021 · 1960

Boettiger v. Commissioner 31 T.C. 477 · 1958

Metcalf v. Commissioner 31 T.C. 596 · 1958

Ashcraft v. Commissioner 28 T.C. 356 · 1957

Senter v. Commissioner 25 T.C. 1204 · 1956

Estate of Hirshon v. Commissioner 27 T.C. 558 · 1956

Hollander v. Commissioner 26 T.C. 827 · 1956

Thompson v. Commissioner 22 T.C. 275 · 1954

Hunt v. Commissioner 22 T.C. 561 · 1954

Holahan v. Commissioner 21 T.C. 451 · 1954

Walsh v. Commissioner 21 T.C. 1063 · 1954

Glasgow v. Commissioner 21 T.C. 211 · 1953

Cattier v. Commissioner 17 T.C. 1461 · 1952

Oahu Beach & Country Homes, Ltd. v. Commissioner 17 T.C. 1472 · 1952

Prickett v. Commissioner 18 T.C. 872 · 1952

Grant v. Commissioner 18 T.C. 1013 · 1952

Reighley v. Commissioner 17 T.C. 344 · 1951

Trust under Deed of Welsh v. Commissioner 16 T.C. 1398 · 1951

Lerner v. Commissioner 15 T.C. 379 · 1950

Estate of Reid v. Commissioner 15 T.C. 573 · 1950

Fry v. Commissioner 13 T.C. 658 · 1949

Jefferson v. Commissioner 13 T.C. 1092 · 1949

Estate of Hart v. Commissioner 11 T.C. 16 · 1948

Stewart v. Commissioner 9 T.C. 195 · 1947

Estate of Laughlin v. Commissioner 8 T.C. 33 · 1947

LeRoy v. Commissioner 4 T.C. 70 · 1944

United States v. Steinman 130 F.4th 693 · Cir.

United States v. Steinman · Cir.

2 · Cir.

Citizens United v. Schneiderman · Cir.

Citizens United v. Schneiderman 882 F.3d 374 · Cir.

§171 — Amortizable bond premium

60 Citing Cases

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