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method.2 Rather, respondent relies on the specific provisions of
section 1281 requiring the accrual of income earned on short-term
obligations.
The pertinent provisions of section 1281(a) are as follows:
SEC. 1281. CURRENT INCLUSION IN INCOME OF DISCOUNT ON
CERTAIN SHORT-TERM OBLIGATIONS.
(a) General Rule.--In the case of any short-term
obligation to which this section applies, for purposes of
this title--
(1) there shall be included in the gross income of
the holder an amount equal to the sum of the daily
portions of the acquisition discount for each day
during the taxable year on which such holder held such
obligation, and
(2) any interest payable on the obligation (other
than interest taken into account in determining the
amount of the acquisition discount) shall be included
in gross income as it accrues.
(b) Short-Term Obligations to Which Section Applies.--
(1) In general.--This section shall apply to any
short-term obligation which--
* * * * * * *
(C) is held by a bank (as defined in section 581),
* * * * * * *
(c) Cross Reference.--For special rules limiting the
application of this section to original issue discount in
the case of nongovernmental obligations, see section
1283(c).
2Although it is not explicitly indicated in the record, it
appears that petitioner was allowed to use the cash method of
accounting in 1989 because it had gross income of less than $5
million. See secs. 446(a), (c)(1), 448(b)(3).
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