Tax Facts

7648 / How is market discount treated on the sale of stock received on conversion of a market discount bond?

If, on conversion of a market discount bond issued after July 18, 1984, or issued on or before July 18, 1984, and purchased after April 30, 1993, a taxpayer receives stock in the issuer of the bond, the amount of market discount accrued to the date of exchange must be treated as ordinary interest income upon sale or disposition of the stock, unless the taxpayer had elected to include in income market discount on the bond as it accrued.1

1. IRC §§ 1276(c), 1278(b).

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