---
kind: "section"
citation: "26 U.S.C. § 1273"
title: "26"
title_heading: "Internal Revenue Code"
number: "1273"
heading: "Determination of amount of original issue discount"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/26/1273"
units:
  - "Subtitle A — Income Taxes"
  - "Chapter 1 — Normal Taxes and Surtaxes"
  - "Subchapter P — Capital Gains and Losses"
  - "Part V — Special Rules for Bonds and Other Debt Instruments"
  - "Subpart A — Original Issue Discount"
---

# §1273. Determination of amount of original issue discount

- (a) **General rule—** For purposes of this subpart—
  - (1) **In general—** The term “[original issue discount](/usc/26/1278.md?p=a-5)” means the excess (if any) of—
    - (A) the [stated redemption price at maturity](/usc/26/1278.md?p=a-5), over
    - (B) the [issue price](/usc/26/1278.md?p=a-5).
  - (2) **Stated redemption price at maturity—** The term “[stated redemption price at maturity](/usc/26/1278.md?p=a-5)” means the amount fixed by the last [modification](/usc/26/424.md?p=h-3) of the [purchase](/usc/26/1361.md?p=e-1-C) agreement and includes [interest](/usc/26/856.md?p=f-1) and other amounts payable at that time (other than any [interest](/usc/26/856.md?p=f-1) 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](/usc/26/1275.md?p=a-1-A)).
  - (3) **¼ of 1 percent de minimis rule—** If the [original issue discount](/usc/26/1278.md?p=a-5) determined under [paragraph (1)](#a-1) is less than—
    - (A) ¼ of 1 percent of the [stated redemption price at maturity](/usc/26/1278.md?p=a-5), multiplied by
    - (B) the number of complete years to maturity,

    then the [original issue discount](/usc/26/1278.md?p=a-5) shall be treated as zero.

- (b) **Issue price—** For purposes of this subpart—
  - (1) **Publicly offered debt instruments not issued for property—** In the case of any issue of [debt instruments](/usc/26/1275.md?p=a-1-A)—
    - (A) publicly offered, and
    - (B) not issued for [property](/usc/26/317.md?p=a),

    the [issue price](/usc/26/1278.md?p=a-5) is the initial offering price to the public (excluding [bond](/usc/26/150.md?p=a-1) houses and brokers) at which price a substantial amount of such [debt instruments](/usc/26/1275.md?p=a-1-A) was sold.

  - (2) **Other debt instruments not issued for property—** In the case of any issue of [debt instruments](/usc/26/1275.md?p=a-1-A) not issued for [property](/usc/26/317.md?p=a) and not publicly offered, the [issue price](/usc/26/1278.md?p=a-5) of each such instrument is the price paid by the first buyer of such [debt instrument](/usc/26/1275.md?p=a-1-A).
  - (3) **Debt instruments issued for property where there is public trading—** In the case of a [debt instrument](/usc/26/1275.md?p=a-1-A) which is issued for [property](/usc/26/317.md?p=a) and which—
    - (A) is part of an issue a portion of which is traded on an established [securities](/usc/26/368.md?p=a-2-F-vii) market, or
    - (B)
      - (i) is issued for [stock](/usc/26/1504.md?p=a-4) or [securities](/usc/26/368.md?p=a-2-F-vii) which are traded on an established [securities](/usc/26/368.md?p=a-2-F-vii) market, or
      - (ii) to the extent provided in regulations, is issued for [property](/usc/26/317.md?p=a) (other than [stock](/usc/26/1504.md?p=a-4) or [securities](/usc/26/368.md?p=a-2-F-vii)) of a kind regularly traded on an established market,

    the [issue price](/usc/26/1278.md?p=a-5) of such [debt instrument](/usc/26/1275.md?p=a-1-A) shall be the fair market [value](/usc/26/851.md?p=c-4) of such [property](/usc/26/317.md?p=a).

  - (4) **Other cases—** Except in any case—
    - (A) to which paragraph (1), (2), or (3) of this subsection applies, or
    - (B) to which [section 1274](/usc/26/1274.md) applies,

    the [issue price](/usc/26/1278.md?p=a-5) of a [debt instrument](/usc/26/1275.md?p=a-1-A) which is issued for [property](/usc/26/317.md?p=a) shall be the [stated redemption price at maturity](/usc/26/1278.md?p=a-5).

  - (5) **Property—** In applying this subsection, the term “[property](/usc/26/317.md?p=a)” includes services and the right to use [property](/usc/26/317.md?p=a), but such term does not include money.
- (c) **Special rules for applying subsection (b)—** For purposes of [subsection (b)](#b)—
  - (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](/usc/26/1361.md?p=e-1-C) agreement, including [modifications](/usc/26/424.md?p=h-3) thereof.
  - (2) **Treatment of investment units—** In the case of any [debt instrument](/usc/26/1275.md?p=a-1-A) and an option, security, or other [property](/usc/26/317.md?p=a) issued together as an investment unit—
    - (A) the [issue price](/usc/26/1278.md?p=a-5) for such unit shall be determined in accordance with the rules of this subsection and [subsection (b)](#b) as if it were a [debt instrument](/usc/26/1275.md?p=a-1-A),
    - (B) the [issue price](/usc/26/1278.md?p=a-5) determined for such unit shall be allocated to each element of such unit on the basis of the relationship of the fair market [value](/usc/26/851.md?p=c-4) of such element to the fair market [value](/usc/26/851.md?p=c-4) of all elements in such unit, and
    - (C) the [issue price](/usc/26/1278.md?p=a-5) of any [debt instrument](/usc/26/1275.md?p=a-1-A) included in such unit shall be the portion of the [issue price](/usc/26/1278.md?p=a-5) of the unit allocated to the [debt instrument](/usc/26/1275.md?p=a-1-A) under [subparagraph (B)](#c-2-B).

## Source credit

(Added Pub. L. 98–369, div. A, title I, § 41(a), July 18, 1984, 98 Stat. 536; amended Pub. L. 99–514, title XVIII, § 1803(a)(10), Oct. 22, 1986, 100 Stat. 2794.)

## Notes

### Editorial Notes

### Amendments

1986—Subsec. (b)(3)(B). Pub. L. 99–514 amended subpar. (B) generally, designating existing provisions as cl. (i) and adding cl. (ii).

### Statutory Notes and Related Subsidiaries

### Effective Date of 1986 Amendment

Amendment by Pub. L. 99–514 effective, 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 of Pub. L. 99–514, set out as a note under section 48 of this title.

### Effective Date

Section applicable to taxable years ending after July 18, 1984, except as otherwise provided, see section 44 of Pub. 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. 99–514 require 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 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title.