DEALERS IN TAX-EXEMPT SECURITIES.

SEC. 2. DEALERS IN TAX-EXEMPT SECURITIES. (a) Municipal Bonds.— Section 75 (relating to dealers in tax-exempt securities) is amended— (1) by striking out paragraph (1) of subsection (b) and inserting in lieu thereof the following: “(1) The term ‘municipal bond’ means any obligation issued by a government or political subdivision thereof if the interest 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 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: and “(B) when it is sold or otherwise disposed of by the taxpayer— “(i) in the case of a sale, the amount realized, or “(ii) in the case of any other disposition, its fair market value at the time of such disposition, is higher than its adjusted basis (computed without regard to this section and section 1016 (a) (6)). Determinations under subparagraph (B) shall be exclusive of interest.”; (2) by striking out “short-term” each place it appears in subsection (a); and (3) by adding at the end of subsection (a) the following new sentence: “Notwithstanding the provisions of paragraph (1), no reduction to the cost of securities sold during the taxable year shall be made in 72 Stat. 1607 respect of any obligation described in subsection (b) (1) (A) (ii) which is held by the taxpayer 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 (as defined in subsection (b) (1)), the cost of securities sold during such year shall be reduced by an amount equal to the adjustment described in paragraph (2), without regard to the fact that the taxpayer values his inventories on any basis other than cost.” (b) Conforming Amendment.—Section 1016 (a) (6) (relating to adjustments to basis) is amended by striking out “short-term”. (c) Effective Date.—The amendments made by subsections (a) and (b) shall apply with respect to taxable years ending after December 31, 1957, but only with respect to obligations acquired after such date.