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the Court in Security Bank Minn. was aware of respondent's view
that short-term obligations were generally issued with OID.
As a result, we were inclined to disregard respondent's
argument that the asserted presence of OID in this case requires
a result different from that decided in Security Bank Minn., even
before we had considered the effect of our recently released
decision in Security State Bank v. Commissioner, supra.18
Subsequent to the parties' submissions in this case, in our
decision in Security State Bank v. Commissioner, supra, we
explained certain aspects of our decision in Security Bank Minn.
v. Commissioner, supra. In Security State Bank, respondent made
essentially the same alternative argument; i.e., that
notwithstanding our decision with respect to the accrual of
interest in Security Bank Minn. (under section 1281(a)(2)),
section 1281(a)(1) requires accrual of OID on short-term bank
loans.
In response to this argument, in Security State Bank v.
Commissioner, supra, we stated that, because it had not been
necessary for us to make a specific holding regarding the
application of section 1281(a)(1) in Security Bank Minn. v.
Commissioner, supra, it could be said "in a technical sense" that
18 For a contemporaneous critical view of respondent's
alternative argument based upon the 1986 Proposed Regs., see
Lokken, "The Time Value of Money Rules", 42 Tax L. Rev. 1, 40
n.100 (1986).
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