[Code of Federal Regulations]
[Title 26, Volume 11]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.1286-1]

[Page 590]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.1286-1  Tax treatment of certain stripped bonds and stripped coupons.

    (a) De minimis OID. If the original issue discount determined under 
section 1286(a) with respect to the purchase of a stripped bond or 
stripped coupon is less than the amount computed under subparagraphs (A) 
and (B) of section 1273(a)(3) and the regulations thereunder, then the 
amount of original issue discount with respect to that purchase (other 
than any tax-exempt portion thereof, determined under section 
1286(d)(2)) shall be considered to be zero. For purposes of this 
computation, the number of complete years to maturity is measured from 
the date the stripped bond or stripped coupon is purchased.
    (b) Treatment of certain stripped bonds as market discount bonds--
(1) In general. By publication in the Internal Revenue Bulletin (see 
Sec. 601.601(d)(2)(ii)(b) of the Statement of Procedural Rules), the 
Internal Revenue Service may (subject to the limitation of paragraph 
(b)(2) of this section) provide that certain mortgage loans that are 
stripped bonds are to be treated as market discount bonds under section 
1278. Thus, any purchaser of such a bond is to account for any discount 
on the bond as market discount rather than original issue discount.
    (2) Limitation. This treatment may be provided for a stripped bond 
only if, immediately after the most recent disposition referred to in 
section 1286(b)--
    (i) The amount of original issue discount with respect to the 
stripped bond is determined under paragraph (a) of this section 
(concerning de minimis OID); or
    (ii) The annual stated rate of interest payable on the stripped bond 
is no more than 100 basis points lower than the annual stated rate of 
interest payable on the original bond from which it and any other 
stripped bond or bonds and any stripped coupon or coupons were stripped.
    (c) Effective date. This section is effective on and after August 8, 
1991.

[T.D. 8463, 57 FR 61812, Dec. 29, 1992]