Except as otherwise provided in this section, the net direct interest expense with respect to any short-term obligation shall be allowed as a deduction for the taxable year only to the extent such expense exceeds the sum of—
(1) the daily portions of the acquisition discount for each day during the taxable year on which the taxpayer held such obligation, and
(2) the amount of any interest payable on the obligation (other than interest taken into account in determining the amount of the acquisition discount) which accrues during the taxable year while the taxpayer held such obligation (and is not included in the gross income of the taxpayer for such taxable year by reason of the taxpayer's method of accounting).
This section shall not apply to any short-term obligation to which section 1281 applies.
A taxpayer may make an election under this paragraph to have section 1281 apply to all short-term obligations acquired by the taxpayer on or after the 1st day of the 1st taxable year to which such election applies.
An election under this paragraph shall apply to the taxable year for which it is made and for all subsequent taxable years, unless the taxpayer secures the consent of the Secretary to the revocation of such election.
Rules similar to the rules of subsections (b) and (c) of section 1277 shall apply for purposes of this section.
For special rules limiting the application of this section to original issue discount in the case of nongovernmental obligations, see section 1283(c).
(Added Pub. L. 98–369, div. A, title I, §41(a), July 18, 1984, 98 Stat. 549; amended Pub. L. 99–514, title XVIII, §1803(a)(8)(B), Oct. 22, 1986, 100 Stat. 2794.)
1986—Subsec. (a). Pub. L. 99–514 amended subsec. (a) generally, designating existing provisions as par. (1) and adding par. (2).
Amendment by Pub. L. 99–514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as a note under section 48 of this title.
Section applicable to taxable years ending after July 18, 1984, and to obligations acquired after that date, see section 44 of Pub. L. 98–369, set out as a note under section 1271 of this title.
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title.
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