ORIGINAL ISSUE DISCOUNT.

SEC. 313. ORIGINAL ISSUE DISCOUNT. (a) Separate Treatment of Original Issue Discount—Sections 871(a)(1)(A), 881(a)(1), and 1441(b) (relating to taxation and withholding on none effectively connected income of nonresident alien individuals and foreign corporations) are each amended by inserting after the word “interest” the following: “(other than original issue discount as defined in section 1232(b))”. 85 Stat. 527 (b) Nonresident Aliens—Section 871(a) (1) (C) (relating to tax on none effectively connected income of nonresident alien individuals) is amended to read as follows: “(C) in the case of— “(i) bonds or other evidences of indebtedness issued after September 28, 1965, and before April 1, 1972, amounts which under section 1232(a)(2)(B) are considered as gain from the sale or exchange of property which is not a capital asset, and, in the case of corporate obligations issued after May 27, 1969, and before April 1, 1972, amounts which would be so considered but for the fact the obligations were issued after May 27, 1969, “(ii) bonds or other evidences of indebtedness issued after March 31, 1972, and payable more than 6 months from the date of original issue (without regard to the period held by the taxpayer), amounts which under section 1232(a) (2) (B) would be considered as gain from the sale or exchange of property which is not a capital asset but for the fact such obligations were issued after May 27, 1969, and “(iii) the payment of interest on an obligation described in clause (ii), an amount equal to the original issue discount (but not in excess of such interest less the tax imposed by subparagraph (A) thereon) accrued on such obligation since the last payment of interest thereon, and”. (c) Foreign Corporations—Section 881 (a) (3) (relating to income of foreign corporations) is amended to read as follows: “(3) in the case of— “(A) bonds or other evidences of indebtedness issued after September 28, 1965, and before April 1, 1972, amounts which under section 1232(a)(2)(B) are considered as gain from the sale or exchange of property which is not a capital asset, and, in the case of corporate obligations issued after May 27, 1969, and before April 1, 1972, amounts which would be so considered but for the fact the obligations were issued after May 27, 1969, “(B) bonds or other evidences of indebtedness issued after March 31, 1972, and payable more than 6 months from the date of original issue (without regard to the period held by the taxpayer), amounts which under section 1232(a) (2) (B) would be considered as gain from the sale or exchange of property which is not a capital asset but for the fact such obligations were issued after May 27, 1969, and “(C) the payment of interest on an obligation described in subparagraph (B), an amount equal to the original issue dis-count (but not in excess of such interest less the tax imposed by paragraph (1) thereon) accrued on such obligation since the last payment of interest thereon, and”. (d) Withholding on Nonresident Aliens—Section 1441(c) (relating to withholding of tax on nonresident aliens) is amended by adding at the end thereof the following new paragraph: “(8) Original issue discount—The Secretary or his delegate may prescribe such regulations as may be necessary for the deduction and withholding of the tax on original issue discount subject to tax under section 871(a) (1) (C) including rules for the deduction and withholding of the tax on original issue discount from payments of interest.” 85 Stat. 528 (e) Withholding on Foreign Corporations—Section 1442(a) (relating to withholding of tax on foreign corporations) is amended— (1) by striking out “and” the last time it appears, and (2) by inserting before the period at the end thereof “, and the reference in section 1441(c)(8) to section 871(a)(1)(C) shall be treated as referring to section 881(a) (3)”. (f) Effective Dates—The amendments to sections 871 and 881 of the Internal Revenue Code of 1954 made by this section shall apply with respect to taxable years beginning after December 31, 1966. The amendments to sections 1441 and 1442 of such Code made by this section shall apply with respect to payments occurring on or after April 1, 1972.