LIMITATION ON DEDUCTION OF BOND PREMIUM ON REPURCHASE.

SEC. 414. LIMITATION ON DEDUCTION OF BOND PREMIUM ON REPURCHASE. (a) Limitation on Deduction of Bond Premium on Repurchase.— Part VIII of Subchapter B of chapter 1 (relating to special deductions for corporations) is amended by adding at the end thereof the following new section: “SEC. 249. LIMITATION ON DEDUCTION OF BOND PREMIUM ON REPURCHASE. “(a) General Rule.—No deduction shall be allowed to the issuing corporation for any premium paid or incurred upon the repurchase of a bond, debenture, note, or certificate or other evidence of indebtedness which is convertible into the stock of the issuing corporation, or a corporation in control of, or controlled by, the issuing corporation, to the extent the repurchase price exceeds an amount equal to the adjusted issue price plus a normal call premium on bonds or other evidences of 83 Stat. 613 indebtedness which are not convertible. The preceding sentence shall not apply to the extent that the corporation can demonstrate to the satisfaction of the Secretary or his delegate that such excess is attributable to the cost of borrowing and is not attributable to the conversion feature. “(b) Special Rules.—For purposes of subsection (a)— “(1) Adjusted issue price.—The adjusted issue price is the issue price (as defined in section 1232(b)) increased by any amount of discount deducted before repurchase, or, in the case of bonds or other evidences of indebtedness issued after February 28, 1913, decreased by any amount of premium included in gross income before repurchase by the issuing corporation. “(2) Control.—The term ‘control’ has the meaning assigned to such term by section 368(c).” (b) Clerical Amendment.—The table of sections for part VIII of subchapter B of chapter 1 is amended by adding at the end thereof the following new item: “Sec. 249. Limitation on deduction of bond premium on repurchase.” (c) Effective Date.—The amendments made by this section shall apply to a convertible bond or other convertible evidence of indebtedness repurchased after April 22, 1969, other than such a bond or other evidence of indebtedness repurchased pursuant to a binding obligation incurred on or before April 22, 1969, to repurchase such bond or other evidence of indebtedness at a specified call premium, but no inference shall be drawn from the fact that section 249 of the Internal Revenue Code of 1954 (as added by subsection (a) of this section) does not apply to the repurchase of such convertible bond or other convertible evidence of indebtedness.