In TD. 9653, the IRS issued final regs on the tax treatment of bond premium carryforwards in the final accrual period. The final regs adopt ,without substantiative change, the proposed regs [Reg. 140437-12, January 2013] and withdrew the temporary reg-T.D. 9609.
The temporary reg was issued to answer a holder’s question concerning the treatment of a taxable zero-coupon debt instrument, including a Treasury bill, acquired at a premium but having a negative yield. Under prior regs, a holder who elected to amortize the bond premium, would have a capital loss if the security was retired or sold.
The IRS said this situation arose as a result of market conditions and was not contemplated when the prior regs were issued in 1997. The new regs deal with this issue by adding a Read more