Except as otherwise provided in this section, the net direct interest expense with respect to any short-term obligation shall be allowed as a deduction for the taxable year only to the extent such expense exceeds the sum of—
(1)the daily portions of the acquisition discount for each day during the taxable year on which the taxpayer held such obligation, and
(2)the amount of any interest payable on the obligation (other than interest taken into account in determining the amount of the acquisition discount) which accrues during the taxable year while the taxpayer held such obligation (and is not included in the gross income of the taxpayer for such taxable year by reason of the taxpayer’s method of accounting).
(b) Section not to apply to obligations to which section
(1) In general
This section shall not apply to any short-term obligation to which section
(2) Election to have section
1281 apply to all obligations
(A) In general
A taxpayer may make an election under this paragraph to have section
1281 apply to all short-term obligations acquired by the taxpayer on or after the 1st day of the 1st taxable year to which such election applies.
(B) Period to which election applies
An election under this paragraph shall apply to the taxable year for which it is made and for all subsequent taxable years, unless the taxpayer secures the consent of the Secretary to the revocation of such election.
(c) Certain rules made applicable
Rules similar to the rules of subsections (b) and (c) ofsection
1277 shall apply for purposes of this section.
(d) Cross reference
For special rules limiting the application of this section to original issue discount in the case of nongovernmental obligations, see section
1986—Subsec. (a). Pub. L. 99–514amended subsec. (a) generally, designating existing provisions as par. (1) and adding par. (2).
Effective Date of 1986 Amendment
Amendment by Pub. L. 99–514effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 ofPub. L. 99–514, set out as a note under section
48 of this title.
Section applicable to taxable years ending after July 18, 1984, and to obligations acquired after that date, see section 44 ofPub. L. 98–369, set out as a note under section
1271 of this title.
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and
1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 ofPub. L. 99–514, as amended, set out as a note under section
401 of this title.
The table below lists the classification updates, since Jan. 3, 2012, for this section. Updates to a broader range of sections may be found at the update page for containing chapter, title, etc.
The most recent Classification Table update that we have noticed was Tuesday, August 13, 2013
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Description of Change
Statutes at Large
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