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TITLE 26-INTERNAL REVENUE CODE which is returned on the basis and in the manner pre- scribed in section 453(a)(1) of the Internal Revenue Code of 1954, If the gain or loss was treated as long- term for the taxable year for which the amount was realized, such gain or loss shall be treated as long-term for the taxable year for which the gain or loss is re- turned or otherwise recognized." CROS REFERENCES Adjustments required by changes in method of ac- counting not to apply to changes under this section, see section 481 of this title. Inclusion in gross income, installment obligations ac- quired from decedent, see section 691 of this title. SECTION REFERRIE TO IN OTHER SECTIONS This section is referred to in sections 311, 336, 381, 481, 644, 679, 691, 6158 of this title. § 454. Obligations issued at discount (a) Non-interest-bearing obligations issued at a dis- count If, in the case of a taxpayer owning any non- interest-bearing obligation issued at a discount and redeemable for fixed amounts increasing at stated intervals or owning an obligation de- scribed in paragraph (2) of subsection (c., the increase in the redemption price of such obliga- tion occurring in the taxable year does not (under the method of accounting used in com- puting his taxable income) constitute income to him in such year, such taxpayer may, at his election made in his return for any taxable year, treat such increase as income received in such taxable year. If any such election is made with respect to any such obligation, it shall apply also to all such obligations owned by the taxpayer at the beginning of the first taxable year to which it applies and to all such obliga- tions thereafter acquired by him and shall be binding for all subsequent taxable years, unless on application by the taxpayer the Secretary permits him, subject to such conditions as the Secretary deems necessary, to change to a dif- ferent method. In the case of any such obliga- tions owned by the taxpayer at the beginning of the first taxable year to which his election applies, the increase in the redemption price of such obligations occurring between the date of acquisition (or, in the case of an obligation de- scribed in paragraph (2) of subsection (c), the date of acquisition of the series E bond in- volved) and the first day of such taxable year shall also be treated as income received in such taxable year. (b) Short-term obligations issued on discount basis In the case of any obligation- (1) of the United States; or (2) of a State or a possession of the United States, or any political subdivision of any of the foregoing, or of the District of Columbia, which is issued on a discount basis and payable without interest at a fixed maturity date not exceeding 1 year from the date of issue, the amount of discount at which such obligation is originally sold shall not be considered to accrue until the date on which such obligation is paid at maturity, sold, or otherwise disposed of. (c) Matured United States savings bonds In the case of a taxpayer who- (1) holds a series E United States savings bond at the date of maturity, and (2) pursuant to regulations prescribed under the Second Liberty Bond Act (A) re- tains his investment in such series E bond in an obligation of the United States, other than a current income ob~ligation, or (B) exchanges such series E bond for another nontransfera- ble obligation of the United States in an ex- change upon which gain or loss is not recog- nized because of section 1037 (or so much of section 1031 as relates to section 1037), the increase in redemption value (to the extent not previously includible in gross income) in excess of the amount paid for such series E bond shall be includible in gross income in the taxable year in which the obligation is finally redeemed or In the taxable year of final maturi- ty, whichever is earlier. This subsection shall not apply to a corporation, and shall not apply in the case of any taxable year for which the taxpayer's taxable income is computed under an ,.ccrual method of accounting or for which an election made by the taxpayer under subsec- tion (a) applies. (Aug. 16, 1954, ch. 736, 68A Stat. 156; Sept. 22, 1959, Pub. L. 86-346, title I, § 102, 73 Stat. 621; Oct. 4, 1976, Pub. L. 94-455, title XIX, §§ 1901(c)(2), 1906(b)(13)(A), 90 Stat. 1803, 1834.) REFERENCES IN TEXT The Second Liberty Bond Act, referred to in subsec. (c)(2), is act Sept. 24, 1917, ch. 56, 40 Stat. 288, as amended. For classification of this Act to the Code, see References in Text note set out under section 774 of Title 31, Money and Finance, and Tables volume. AMENDMENTS 1976-Subsec. ta). Pub. L. 94-455, § 1906(b)(13)(A), struck out "or his delegate" following "Secretary" in two places. Subsec. (b)(2). Pub. L. 94-455, 1901(c)(2), struck out ", a Territory," following "a State". 1959-Subsec. (c). Pub. L. 86-346 designated existing provisions as par. (2)(A), inserted "of the United States" following "an obligation" and deleted "the ma- turity value of" preceding "such series E bond" and "which matures not more than 10 years from the date of maturity of such series E bond" following "income obligation" in such par. (2)(A), and added par. (2)(B). FREEDOM SHARES AS UNITED STATES SERIES E BONDS For purposes of maturity of United States Savings Bonds, freedom shares issued not later than one year after Dec. 1, 1969 to be treated as United States series E bonds, see section 3 of Pub. L. 91-130, set out as a note under section 757c of Title 31, Money and Fi- nance. SECTION REFECRIE TO IN OTHER SECTIONS This section is referred to in section 1037 of this title. § 455. Prepaid subscription income (a) Year in which included Prepaid subscription income to which this section applies shall be included in gross income for the taxable years during which the liability described in subsection (d)(2) exists. (b) Where taxpayer's liability ceases In the case of any prepaid subscription income to which this section applies- (1) If the liability described in subsection (d)(2) ends, then so much of such income as § 454 Page 362