--- kind: "section" citation: "26 U.S.C. § 75" title: "26" title_heading: "Internal Revenue Code" number: "75" heading: "Dealers in tax-exempt securities" release: "119-102" date: "2026-07-12" url: "https://uscodex.org/usc/26/75" units: - "Subtitle A — Income Taxes" - "Chapter 1 — Normal Taxes and Surtaxes" - "Subchapter B — Computation of Taxable Income" - "Part II — Items Specifically Included in Gross Income" --- # §75. Dealers in tax-exempt securities - (a) **Adjustment for bond premium—** In computing the gross income of a [taxpayer](/usc/26/1313.md?p=b) who holds during the taxable year a municipal [bond](/usc/26/150.md?p=a-1) (as defined in [subsection (b)(1)](#b-1)) primarily for sale to customers in the ordinary course of his [trade or business](/usc/26/1402.md?p=c)— - (1) if the gross income of the [taxpayer](/usc/26/1313.md?p=b) from such [trade or business](/usc/26/1402.md?p=c) is computed by the use of inventories and his inventories are valued on any basis other than cost, the cost of [securities](/usc/26/368.md?p=a-2-F-vii) sold (as defined in [subsection (b)(2)](#b-2)) during such year shall be reduced by an amount equal to the amortizable [bond](/usc/26/150.md?p=a-1) premium which would be disallowed as a deduction for such year by [section 171(a)(2)](/usc/26/171.md?p=a-2) (relating to deduction for amortizable [bond](/usc/26/150.md?p=a-1) premium) if the definition in [section 171(d)](/usc/26/171.md?p=d) of the term “[bond](/usc/26/150.md?p=a-1)” did not exclude such municipal [bond](/usc/26/150.md?p=a-1); or - (2) if the gross income of the [taxpayer](/usc/26/1313.md?p=b) from such [trade or business](/usc/26/1402.md?p=c) is computed without the use of inventories, or by use of inventories valued at cost, and the municipal [bond](/usc/26/150.md?p=a-1) is sold or otherwise disposed of during such year, the adjusted basis (computed without regard to this paragraph) of the municipal [bond](/usc/26/150.md?p=a-1) shall be reduced by the amount of the adjustment which would be required under [section 1016(a)(5)](/usc/26/1016.md?p=a-5) (relating to adjustment to basis for amortizable [bond](/usc/26/150.md?p=a-1) premium) if the definition in [section 171(d)](/usc/26/171.md?p=d) of the term “[bond](/usc/26/150.md?p=a-1)” did not exclude such municipal [bond](/usc/26/150.md?p=a-1). Notwithstanding the provisions of [paragraph (1)](#a-1), no reduction to the cost of [securities](/usc/26/368.md?p=a-2-F-vii) sold during the taxable year shall be made in respect of any obligation described in [subsection (b)(1)(A)(ii)](#b-1-A-ii) which is held by the [taxpayer](/usc/26/1313.md?p=b) at the close of the taxable year; but in the taxable year in which any such obligation is sold or otherwise disposed of, if such obligation is a municipal [bond](/usc/26/150.md?p=a-1) (as defined in [subsection (b)(1)](#b-1)), the cost of [securities](/usc/26/368.md?p=a-2-F-vii) sold during such year shall be reduced by an amount equal to the adjustment described in [paragraph (2)](#a-2), without regard to the fact that the [taxpayer](/usc/26/1313.md?p=b) [values](/usc/26/851.md?p=c-4) his inventories on any basis other than cost. - (b) **Definitions—** For purposes of [subsection (a)](#a)— - (1) The term “municipal [bond](/usc/26/150.md?p=a-1)” means any obligation issued by a government or political subdivision thereof if the [interest](/usc/26/856.md?p=f-1) on such obligation is excludable from gross income; but such term does not include such an obligation if— - (A) - (i) it is sold or otherwise disposed of by the [taxpayer](/usc/26/1313.md?p=b) within 30 days after the date of its acquisition by him, or - (ii) its earliest maturity or call date is a date more than 5 years from the date on which it was acquired by the [taxpayer](/usc/26/1313.md?p=b); and - (B) when it is sold or otherwise disposed of by the [taxpayer](/usc/26/1313.md?p=b)— - (i) in the case of a sale, the amount realized, or - (ii) in the case of any other [disposition](/usc/26/424.md?p=c-1), its fair market [value](/usc/26/851.md?p=c-4) at the time of such [disposition](/usc/26/424.md?p=c-1), is higher than its adjusted basis (computed without regard to this section and [section 1016(a)(6)](/usc/26/1016.md?p=a-6)). [Determinations](/usc/26/1313.md?p=a) under [subparagraph (B)](#b-1-B) shall be exclusive of [interest](/usc/26/856.md?p=f-1). - (2) The term “cost of [securities](/usc/26/368.md?p=a-2-F-vii) sold” means the amount ascertained by subtracting the inventory [value](/usc/26/851.md?p=c-4) of the closing inventory of a taxable year from the sum of— - (A) the inventory [value](/usc/26/851.md?p=c-4) of the opening inventory for such year, and - (B) the cost of [securities](/usc/26/368.md?p=a-2-F-vii) and other [property](/usc/26/317.md?p=a) purchased during such year which would properly be included in the inventory of the [taxpayer](/usc/26/1313.md?p=b) if on hand at the close of the taxable year. ## Source credit (Aug. 16, 1954, ch. 736, 68A Stat. 25; Pub. L. 85–866, title I, § 2(a), Sept. 2, 1958, 72 Stat. 1606.) ## Notes ### Editorial Notes ### Amendments 1958—Subsec. (a). Pub. L. 85–866, § 2(a)(2), (3), struck out “short-term” each place it appeared, and inserted sentence to provide that no reduction to cost of securities sold during taxable year shall be made in respect of subsec. (b)(1)(A)(ii) obligations held at close of year, and to permit reduction in cost of securities sold in taxable year sold if obligation is municipal bond. Subsec. (b)(1). Pub. L. 85–866, § 2(a)(1), substituted “municipal bond” for “short-term municipal bond”, designated former subpars. (A) and (B) as (A)(i) and (ii), respectively, and added subpar. (B). ### Statutory Notes and Related Subsidiaries ### Effective Date of 1958 Amendment Pub. L. 85–866, § 2(c), Sept. 2, 1958, 72 Stat. 1607, provided that: “The amendments made by subsections (a) and (b) [amending this section and section 1016 of this title] shall apply with respect to taxable years ending after December 31, 1957, but only with respect to obligations acquired after such date.”