BONDS AND OTHER EVIDENCES OF INDEBTEDNESS.

SEC. 413. BONDS AND OTHER EVIDENCES OF INDEBTEDNESS. (a) Bonds and Other Evidences of Indebtedness.—Section 1232(a) (relating to general rule) is amended to read as follows: “(a) General Rule.—For purposes of this subtitle, in the case of bonds, debentures, notes, or certificates or other evidences of indebtedness, which are capital assets in the hands of the taxpayer, and which are issued by any corporation, or by any government or political subdivision thereof— “(1) Retirement.—Amounts received by the holder on retirement of such bonds or other evidences of indebtedness shall be considered as amounts received in exchange therefor (except that in the case of bonds or other evidences of indebtedness issued before January 1, 1955, this paragraph shall apply only to those issued with interest coupons or in registered form, or to those in such form on March 1, 1954). “(2) Sale or exchange.— “(A) Corporate bonds issued after may 27, 1969.—Except as provided in subparagraph (C), on the sale or exchange of bonds or other evidences of indebtedness issued by a corporation after May 27, 1969, held by the taxpayer more than 6 months, any gain realized shall (except as provided in the following sentence) be considered gain from the sale or exchange of a capital asset held for more than 6 months. If at the time of original issue there was an intention to call the bond or other evidence of indebtedness before maturity, any gain realized on the sale or exchange thereof which does not exceed an amount equal to the original issue discount (as defined in subsection (b)) reduced by the portion of original issue discount previously includible in the gross income of any holder (as provided in paragraph (3)(B)) shall be considered as gain from the sale or exchange of property which is not a capital asset. “(B) Corporate bonds issued on or before may 27, 1969, and government bonds.—Except as provided in subparagraph (C), on the sale or exchange of bonds or other evidences of indebtedness issued by a government or political subdivision thereof after December 31, 1954, or by a corporation after December 31, 1954, and on or before May 27, 1969, held by the taxpayer more than 6 months, any gain realized which does not exceed— “(i) an amount equal to the original issue discount (as defined in subsection (b)), or “(ii) if at the time of original issue there was no intention to call the bond or other evidence of indebtedness 83 Stat. 610 before maturity, an amount which bears the same ratio to the original issue discount (as defined in subsection (b)) as the number of complete months that the bond or other evidence of indebtedness was held by the taxpayer bears to the number of complete months from the date of original issue to the date of maturity, shall be considered as gain from the sale or exchange of property which is not a capital asset. Gain in excess of such amount shall be considered gain from the sale or exchange of a capital asset held more than 6 months. “(C) Exceptions.—This paragraph shall not apply to— “(i) obligations the interest on which is not includible in gross income under section 103 (relating to certain governmental obligations), or “(ii) any holder who has purchased the bond or other evidence of indebtedness at a premium. “(D) Double inclusion in income not required.—This section shall not require the inclusion of any amount previously includible in gross income. “(3) Inclusion in income of original issue discount on corporate bonds issued after may 27, 1969.— “(A) General rule.—There shall be included in the gross income of the holder of any bond or other evidence of indebtedness issued by a corporation after May 27, 1969, the ratable monthly portion of original issue discount multiplied by the number of complete months (plus any fractional part of a month determined in accordance with the last sentence of this subparagraph) such holder held such bond or other evidence of indebtedness during the taxable year. Except as provided in subparagraph (B), the ratable monthly portion of original issue discount shall equal the original issue discount (as defined in subsection (b)) divided by the number of complete months from the date of original issue to the stated maturity date of such bond or other evidence of indebtedness. For purposes of this section, a complete month commences with the date of original issue and the corresponding day of each succeeding calendar month (or the last day of a calendar month in which there is no corresponding day); and, in any case where a bond or other evidence of indebtedness is acquired on any other day, the ratable monthly portion of original issue discount for the complete month in which such acquisition occurs shall be allocated between the transferor and the transferee in accordance with the number of days in such complete month each held the bond or other evidence of indebtedness. “(B) Reduction in case of any subsequent holder.—For purposes of this paragraph, the ratable monthly portion of original issue discount shall not include an amount, determined at the time of any purchase after the original issue of such bond or other evidence of indebtedness, equal to the excess of— “(i) the cost of such bond or other evidence of indebtedness incurred by such holder, over “(ii) the issue price of such bond or other evidence of indebtedness increased by the portion of original discount previously includible in the gross income of any holder (computed without regard to this subparagraph), 83 Stat. 611 divided by the number of complete months (plus any fractional part of a month commencing with the date of purchase) from the date of such purchase to the stated maturity date of such bond or other evidence of indebtedness. “(C) Purchase defined.—For purposes of subparagraph (B), the term ‘purchase’ means any acquisition of a bond or other evidence of indebtedness, but only if the basis of the bond or other evidence of indebtedness is not determined in whole or in part by reference to the adjusted basis of such bond or other evidence of indebtedness in the hands of the person from whom acquired, or under section 1014(a) (relating to property acquired from a decedent). “(D) Exceptions.—This paragraph shall not apply to any holder— “(i) who has purchased the bond or other evidence of indebtedness at a premium, or “(ii) which is a life insurance company to which section 818(b) applies. “(E) Basis adjustments.—The basis of any bond or other evidence of indebtedness in the hands of the holder thereof shall be increased by the amount included in his gross income pursuant to subparagraph (A).” (b) Issue Price.—Section 1232(b)(2) (relating to issue price) is amended by adding at the end thereof the following: “In the case of a bond or other evidence of indebtedness and an option or other security issued together as an investment unit, the issue price for such investment unit shall be determined in accordance with the rules stated in this paragraph. Such issue price attributable to each element of the investment unit shall be that portion thereof which the fair market value of such element bears to the total fair market value of all the elements in the investment unit. The issue price of the bond or other evidence of indebtedness included in such investment unit shall be the portion so allocated to it. In the case of a bond or other evidence of indebtedness, or an investment unit as described in this paragraph (other than a bond or other evidence of indebtedness or an investment unit issued pursuant to a plan of reorganization within the meaning of section 068(a)(1) or an insolvency reorganization within the meaning of section 371, 373, or 374), which is issued for property and which— “(A) is part of an issue a portion of which is traded on an established securities market, or “(B) is issued for stock or securities which are traded on an established securities market, the issue price of such bond or other evidence of indebtedness or investment unit, as the case may be, shall be the fair market value of such property. Except in cases to which the preceding sentence applies, the issue price of a bond or other evidence of indebtedness (whether or not issued as a part of an investment unit) which is issued for property (other than money) shall be the stated redemption price at maturity.” (c) Requirement of Reporting.—Section 6049(a)(1) (relating to requirements of reporting interest) is amended to read as follows: “(1) In general.—Every person— “(A) who makes payments of interest (as defined in subsection (b)) aggregating $10 or more to any other person during any calendar year, 83 Stat. 612 “(B) who receives payments of interest as a nominee and who makes payments aggregating $10 or more during any calendar year to any other person with respect to the interest so received, or “(C) which is a corporation that has outstanding any bond debenture, note, or certificate or other evidence of indebtedness in registered form as to which there is during any calendar year an amount of original issue discount aggregating $10 or more includible in the gross income of any holder under section 1232(a)(3) without regard to subparagraph (B) thereof, shall make a return according to the forms or regulations prescribed by the Secretary or his delegate, setting forth the aggregate amount of such payments and such aggregate amount includible in the gross income of any holder and the name and address of the person to whom paid or such holder.” (d) Statements To Be Furnished to Persons With Respect to Whom Information Is Furnished.—Section 6049(c) (relating to statements to be furnished to persons with respect to whom information is furnished) is amended to read as follows: “(c) Statements To Be Furnished to Persons With Respect to Whom Information Is Furnished.—Every person making a return under subsection (a)(1) shall furnish to each person whose name is set forth in such return a written statement showing— “(1) the name and address of the person making such return, and “(2) the aggregate amount of payments to, or the aggregate amount includible in the gross income of, the person as shown on such return. The written statement required under the preceding sentence shall be furnished to the person on or before January 31 of the year following the calendar year for which the return under subsection (a)(1) was made. No statement shall be required to be furnished to any person under this subsection if the aggregate amount of payments to, or the aggregate amount includible in the gross income of, such person shown on the return made with respect to subparagraph (A), (B), or (C), as the case may be, of subsection (a)(1) is less than $10.” (e) Effective Date.—The amendments made by this section shall apply with respect to bonds and other evidences of indebtedness issued after May 27, 1969 (other than evidences of indebtedness issued pursuant to a written commitment which was binding on May 27, 1969, and at all times thereafter).