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TITLE 26-INTERNAL REVENUE CODE feree 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 rat. able monthly portion of original issue dis- count shall not include an amount, deter- mined at the time of any purchase after the original issue of such bond or other evi- dence of indebtedness, equal to the excess of- (1) the cost of such bond or other evi- dence 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 in- cludible in the gross income of any holder (computed without regard to this subpar- agraph), divided by the number of complete months (plus any fractional part of a month com- mencing with the date of purchase) from the date of such purchase to the stated ma- turity 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 evi- dence of indebtedness is not determined in whole or in part by reference to the adjust- ed basis of such bond or other evidence of indebtedness in the riands 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 (it) 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) Definitions (1) Original issue discount For purposes of subsection (a), the term "original issue discount" means the difference between the issue price and the stated re- demption price at maturity. If the original issue discount is less than one-fourth of 1 per- cent of the redemption price at maturity mul- tiplied by the number of complete years to maturity, then the issue discount shall be considered to be zero. For purposes of this paragraph, the term "stated redemption price at maturity" means the amount fixed by the last modification of the purchase agreement and includes dividends payable at that time. (2) Issue price In the case of issues of bonds or other evi- dences of indebtedness registered with the Se- curities and Exchange Commission, the term "issue price" means the initial offering price to the public (excluding bond houses and bro- kers) at which price a substantial amount of such bonds or other evidences of indebtedness were sold. In the case of privately placed issues of bonds or other evidence of indebted- ness, the issue price of each such bond or other evidence of indebtedness is the price paid by the first buyer of such bond increased by the amount, if any, of tax paid under sec- tion 4911, as in effect before July 1, 1974 (and not credited, refunded, or reimbursed) on the acquisition of such bond or evidence of in- debtedness by the first buyer. For purposes of this. paragraph, the terms "initial offering price" and "price paid by the first buyer" in- clude the aggregate payments made by the purchaser under the purchase agreement, in- cluding modifications thereof. 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 accor- dance 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 in- debtedness, or an investment unit as de- scribed in this paragraph (other than a bond or other evidence of indebtedness or an in- vestment unit issued pursuant to a plan of re- organization within the meaning of section 368(a)(1) or an insolvency reorganization within the meaning of section 371 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 invest- ment unit) which is issued for property (other than money) shall be the stated redemption price at maturity. (3) Issue date In the case of issues of bonds or other evi- dences of indebtedness registf red with the Se- curities and Exchange Commission, the term "date of original issue" means the date on which the issue was first sold to the public at the issue price. In the case of privately placed issues of bonds or other evidences of indebt- edness, the term "date of original issue" means the date on which each such bond or other evidence of indebtedness was sold by the issuer. Page 685 § 1232