
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC75]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
               Subchapter B--Computation of Taxable Income
 
          PART II--ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
 
Sec. 75. Dealers in tax-exempt securities


(a) Adjustment for bond premium

    In computing the gross income of a taxpayer who holds during the 
taxable year a short-term municipal bond (as defined in subsection 
(b)(1) primarily for sale to customers in the ordinary course of his 
trade or business--
        (1) if the gross income of the taxpayer from such trade or 
    business is computed by the use of inventories and his inventories 
    are valued on any basis other than cost, the cost of securities sold 
    (as defined in subsection (b)(2) during such year shall be reduced 
    by an amount equal to the amortizable bond premium which would be 
    disallowed as a deduction for such year by section 171(a)(2) 
    (relating to deduction for amortizable bond premium) if the 
    definition in section 171(d) of the term ``bond'' did not exclude 
    such municipal bond; or
        (2) if the gross income of the taxpayer from such trade or 
    business is computed without the use of inventories, or by use of 
    inventories valued at cost, and the municipal bond is sold or 
    otherwise disposed of during such year, the adjusted basis (computed 
    without regard to this paragraph) of the municipal bond shall be 
    reduced by the amount of the adjustment which would be required 
    under section 1016(a)(5) (relating to adjustment to basis for 
    amortizable bond premium) if the definition in section 171(d) of the 
    term ``bond'' did not exclude such municipal bond.

Notwithstanding the provisions of paragraph (1), no reduction to the 
cost of securities sold during the taxable year shall be made in respect 
of any obligation described in subsection (b)(1)(A)(ii) which is held by 
the taxpayer at the close of the taxable year; but in the taxable year 
in which any such obligation is sold or otherwise disposed of, if such 
obligation is a municipal bond (as defined in subsection (b)(1)), the 
cost of securities sold during such year shall be reduced by an amount 
equal to the adjustment described in paragraph (2), without regard to 
the fact that the taxpayer values his inventories on any basis other 
than cost.

(b) Definitions

    For purposes of subsection (a)--
        (1) The term ``municipal bond'' means any obligation issued by a 
    government or political subdivision thereof if the interest on such 
    obligation is excludable from gross income; but such term does not 
    include such an obligation if--
            (A)(i) it is sold or otherwise disposed of by the taxpayer 
        within 30 days after the date of its acquisition by him, or
            (ii) its earliest maturity or call date is a date more than 
        5 years from the date on which it was acquired by the taxpayer; 
        and
            (B) when it is sold or otherwise disposed of by the 
        taxpayer--
                (i) in the case of a sale, the amount realized, or
                (ii) in the case of any other disposition, its fair 
            market value at the time of such disposition,

        is higher than its adjusted basis (computed without regard to 
        this section and section 1016(a)(6)).

    Determinations under subparagraph (B) shall be exclusive of 
    interest.
        (2) The term ``cost of securities sold'' means the amount 
    ascertained by subtracting the inventory value of the closing 
    inventory of a taxable year from the sum of--
            (A) the inventory value of the opening inventory for such 
        year, and
            (B) the cost of securities and other property purchased 
        during such year which would properly be included in the 
        inventory of the taxpayer if on hand at the close of the taxable 
        year.

(Aug. 16, 1954, ch. 736, 68A Stat. 25; Pub. L. 85-866, title I, 
Sec. 2(a), Sept. 2, 1958, 72 Stat. 1606.)


                               Amendments

    1958--Subsec. (a). Pub. L. 85-866, Sec. 2(a)(2), (3), struck out 
``short-term'' each place it appeared, and inserted sentence to provide 
that no reduction to cost of securities sold during taxable year shall 
be made in respect of subsec. (b)(1)(A)(ii) obligations held at close of 
year, and to permit reduction in cost of securities sold in taxable year 
sold if obligation is municipal bond.
    Subsec. (b)(1). Pub. L. 85-866, Sec. 2(a)(1), substituted 
``municipal bond'' for ``short-term municipal bond'', designated former 
subpars. (A) and (B) as (A)(i) and (ii), respectively, and added subpar. 
(B).


                    Effective Date of 1958 Amendment

    Section 2(c) of Pub. L. 85-866 provided that: ``The amendments made 
by subsections (a) and (b) [amending this section and section 1016 of 
this title] shall apply with respect to taxable years ending after 
December 31, 1957, but only with respect to obligations acquired after 
such date.''

                  Section Referred to in Other Sections

    This section is referred to in section 1016 of this title.
