short-term nongovernment obligation
(4) Certain short-term nongovernment obligations (A) In general On the sale or exchange of any short-term nongovernment obligation, any gain realized which does not exceed an amount equal to the ratable share of the original issue discount shall be treated as ordinary income. (B) Short-term nongovernment obligation For purposes of this paragraph, the term “short-term nongovernment obligation” means any obligation which— (i) has a fixed maturity date not more than 1 year from the date of the issue, and (ii) is not a short-term Government obligation (as defined in paragraph (3)(B) without regard to the last sentence thereof). (C) Ratable share For purposes of this paragraph, except as provided in subparagraph (D), the ratable share of the original issue discount is an amount which bears the same ratio to such discount as— (i) the number of days which the taxpayer held the obligation, bears to (ii) the number of days after the date of original issue and up to (and including) the date of its maturity. (D) Election of accrual on basis of constant interest rate At the election of the taxpayer with respect to any obligation, the ratable share of the original issue discount is the portion of the original issue discount accruing while the taxpayer held the obligation determined (under regulations prescribed by the Secretary) on the basis of— (i) the yield to maturity based on the issue price of the obligation, and (ii) compounding daily. Any election under this subparagraph, once made with respect to any obligation, shall be irrevocable.