Thomas J. Gaffney and Anne F. Gaffney - Page 5

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          year the amount of the accrued discount allocable to the portion            
          of the taxable year in which he or she held such debt instrument.           
          See Security Bank Minn. v. Commissioner, 994 F.2d 432, 436 (8th             
          Cir. 1993), affg. 98 T.C. 33 (1992).  The rationale for inclusion           
          is that "Earned original issue discount serves the same function            
          as stated interest * * * it is simply 'compensation for the use             
          or forbearance of money.'"  United States v. Midland-Ross Corp.,            
          381 U.S. 54, 57 (1965) (quoting Deputy v. du Pont, 308 U.S. 488,            
          498 (1940).                                                                 
               We find that petitioners have failed to prove that sections            
          1271 through 1275 do not apply to their debt instruments having             
          original issue discount, or that the amount of accrued original             
          issue discount reported on the Form 1099 is erroneous.  After               
          considering petitioners' other arguments and finding them to be             
          without merit, we hold that petitioners must include in gross               
          income their original issue discount that accrued during 1993.              
          Respondent's determination is sustained.                                    
               To reflect the foregoing,                                              
                                                  Decision will be entered            
                                             for respondent.                          












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