De Minimis Loan OID Exception

§ 1272. Current inclusion in income of original issue discount(a) Original issue discount included in income on basis of constant interest rate(1) General ruleFor purposes of this title, there shall be included in the gross income of the holder of any debt instrument having original issue discount, an amount equal to the sum of the daily portions of the original issue discount for each day during the taxable year on which such holder held such debt instrument. (2) ExceptionsParagraph (1) shall not apply to—(A) Tax-exempt obligationsAny tax-exempt obligation. (B) United States savings bondsAny United States savings bond. (C) Short-term obligationsAny debt instrument which has a fixed maturity date not more than 1 year from the date of issue. (D) Loans between natural persons(i) In generalAny loan made by a natural person to another natural person if—(I) such loan is not made in the course of a trade or business of the lender, and (II) the amount of such loan (when increased by the outstanding amount of prior loans by such natural person to such other natural person) does not exceed $10,000. (ii) Clause (i) not to apply where tax avoidance a principal purposeClause (i) shall not apply if the loan has as 1 of its principal purposes the avoidance of any Federal tax. (iii) Treatment of husband and wifeFor purposes of this subparagraph, a husband and wife shall be treated as 1 person. The preceding sentence shall not apply where the spouses lived apart at all times during the taxable year in which the loan is made. (3) Determination of daily portionsFor purposes of paragraph (1), the daily portion of the original issue discount on any debt instrument shall be determined by allocating to each day in any accrual period its ratable portion of the increase during such accrual period in the adjusted issue price of the debt instrument. For purposes of the preceding sentence, the increase in the adjusted issue price for any accrual period shall be an amount equal to the excess (if any) of—(A) the product of—(i) the adjusted issue price of the debt instrument at the beginning of such accrual period, and (ii) the yield to maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period), over (B) the sum of the amounts payable as interest on such debt instrument during such accrual period. (4) Adjusted issue priceFor purposes of this subsection, the adjusted issue price of any debt instrument at the beginning of any accrual period is the sum of—(A) the issue price of such debt instrument, plus (B) the adjustments under this subsection to such issue price for all periods before the first day of such accrual period.