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TITLE 26-INTERNAL REVENUE CODE § 171. Amortizable bond premium (a) General rule In the case of any bond, as defined in subsec- tion (d), the following rules shall apply to the amortizable bond premium (determined under subsection (b)) on the bond: (1) Taxable bonds In the case of a bond (other than a bond the interest on which is excludable from gross income), the amount of the amortizable bond premium for the taxable year shall be al- lowed as a deduction. (2) Tax-exempt bonds In the case of any bond the interest on which is excludable from gross income, no de- duction shall be allowed for the amortizable bond premium for the taxable year. (3) Cross reference For adjustment to basis on account of amortizable bond premium, see section 1016(a)(5). (b) Amortizable bond premium (1) Amount of bond premium For purposes of paragraph (2), the amount of bond premium, in the case of the holder of any bond, shall be determined- (A) with reference to the amount of the basis (for determining loss on sale or ex- change) of such bond, (B)(i) with reference to the amount pay- able on maturity or on earlier call date, in the case of any bond other than a bond to which clause (ii) applies, or and (ii) with reference to the amount payable on maturity (or if it results in a smaller amortizable bond premium attributable to the period to earlier call date, with refer- ence to the amount payable on earlier call date), in the case of any bond described in subsection (a)(1) which is acquired after De- cember 31, 1957, and (C) with adjustments proper to reflect un- amortized bond premium, with respect to the bond, for the period before the date as of which subsection (a) becomes applicable with respect to the taxpayer with respect to such bond. In no case shall the amount of bond premium on a convertible bond include any amount at- tributable to the conversion features of the bond. (2) Amount amortizable The amortizable bond premium of the tax- able year shall be the amount of the bond premium attributable to such year. In the case of a bond to which paragraph (1)(B)(ii) applies and which has a call date, the amount of bond premium attributable to the taxable year in which the bond is called shall include an amount equal to the excess of the amount of the adjusted basis (for determining loss on sale or exchange) of such bond as of the be- ginning of the taxable year over the amount received on redemption of the bond or (if greater) the amount payable on maturity. (3) Method of determination The determinations required under para- graphs (1) and (2) shall be made- (A) in accordance with the method of am- ortizing bond premium regularly employed by the holder of the bond, if such method is reasonable; (B) in all other cases, in accordance with regulations prescribing reasonable methods of amortizing bond premium prescribed by the Secretary. (c) Election as to taxable bonds (1) Eligibility to elect; bonds with respect to which election permitted In the case of bonds the interest on which is not excludible from gross income, this sec- tion shall apply only if the taxpayer has so elected. (2) Manner and effect of election The election authorized under this .ubsec- tion shall be made in accordance with such regulations as the Secretary shall prescribe. If such election is made with respect to any bond (described in paragraph (1)) of the tax- payer, it shall also apply to all such bonds held by the taxpayer at the beginning of the first taxable year to which the election ap- plies and to all such bonds thereafter ac- quired by him and shall be binding for all subsequent taxable years with respect to all such bonds of the taxpayer, unless, on appli- cation by the taxpayer, the Secretary permits him, subject to such conditions as the Secre- tary deems necessary, to revoke such election. In the case of bonds held by a common trust fund, as defined in section 584(a), or by a for- eign personal holding company, as defined in section 552, the election authorized under this subsection shall be exercisable with re- spect to such bonds only by the common trust fund or foreign personal holding company. In case of bonds held by an estate or trust, the election authorized under this subsection shall be exercisable with respect to such bonds only by the fiduciary. (d) Bond defined For purposes of this section, the term "bond" means any bond, debenture, note, or certificate or other evidence of indebtedness, issued by any corporation and bearing interest (including any like obligation issued by a government or political subdivision thereof), but does not in- clude any such obligation which constitutes stock in trade of the taxpayer or any such obli- gation of a kind which would properly be in- cluded in the inventory of the taxpayer if on hand at the close of the taxable year, or any such obligation held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business. (e) Dealers in tax-exempt securities For special rules applicable, in the case of dealers in securities, with respect to premium attributable to cer- tain wholly tax-exempt securities, see section 75. (Aug. 16, 1954, ch. 736, 68A Stat. 61; Sept. 2, 1958, Pub. L. 85-866, title I, § 13(a), 72 Stat. 1610; Oct. 4, 1976, Pub. L. 94-455, title XIX, §§ 1901(b)(1)(E), 1906(b)(13)(A), 1951(b)(5)(A), 90 Stat. 1790, 1834, 1837.) AMENDMENTS 1976-Subsec. (a)(1). Pub. L. 94-455, § 1901(b)(1)(E)(1), substituted "Taxable bonds" for "In- Page 171