Current inclusion in income of original issue discount

For purposes of this title, there shall be included in the gross income of the holder of any debt instrument having original issue discount, an amount equal to the sum of the daily portions of the original issue discount for each day during the taxable year on which such holder held such debt instrument. Paragraph (1) shall not apply to— Any tax-exempt obligation. Any United States savings bond. Any debt instrument which has a fixed maturity date not more than 1 year from the date of issue. Any loan made by a natural person to another natural person if— Clause (i) shall not apply if the loan has as 1 of its principal purposes the avoidance of any Federal tax. For purposes of this subparagraph, a husband and wife shall be treated as 1 person. The preceding sentence shall not apply where the spouses lived apart at all times during the taxable year in which the loan is made. For purposes of paragraph (1), the daily portion of the original issue discount on any debt instrument shall be determined by allocating to each day in any accrual period its ratable portion of the increase during such accrual period in the adjusted issue price of the debt instrument. For purposes of the preceding sentence, the increase in the adjusted issue price for any accrual period shall be an amount equal to the excess (if any) of— the product of— For purposes of this subsection, the adjusted issue price of any debt instrument at the beginning of any accrual period is the sum of— Except as otherwise provided in regulations prescribed by the Secretary, the term “accrual period” means a 6-month period (or shorter period from the date of original issue of the debt instrument) which ends on a day in the calendar year corresponding to the maturity date of the debt instrument or the date 6 months before such maturity date. In the case of any debt instrument to which this paragraph applies, the daily portion of the original issue discount shall be determined by allocating to each day in any accrual period its ratable portion of the excess (if any) of— For purposes of subparagraph (A), the present value shall be determined on the basis of— This paragraph applies to— For purposes of this subsection, in the case of any purchase after its original issue of a debt instrument to which this subsection applies, the daily portion for any day shall be reduced by an amount equal to the amount which would be the daily portion for such day (without regard to this paragraph) multiplied by the fraction determined under subparagraph (B). For purposes of subparagraph (A), the fraction determined under this subparagraph is a fraction— the numerator of which is the excess (if any) of— This section shall not apply to any holder— For purposes of this section, the term “purchase” means— The basis of any debt instrument in the hands of the holder thereof shall be increased by the amount included in his gross income pursuant to this section.