Security State Bank - Page 7

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          cause us to refrain from applying the doctrine of stare decisis             
          with respect to the section 1281(a)(2) issue.3                              
               Respondent alternatively argues that the loans in question             
          were made in return for notes that contained "original issue                
          discount" within the purview of sections 1281(a)(1) and 1283.               
          According to respondent, section 1281(a)(1) requires petitioner             
          to accrue the daily portion of that discount during the year in             
          which the note was held, regardless of whether petitioner                   
          actually received anything in that year.                                    
               In Security Bank Minn. v. Commissioner, supra at 37, the               
          Commissioner refrained from arguing that section 1281(a)(1)                 
          applied, although he stated on brief that it "arguably does."  It           
          was therefore not necessary for us to make a specific holding               
          regarding the application of section 1281(a)(1).  In a technical            
          sense, respondent's proposed application of section 1281(a)(1)              
          presents an issue of first impression.  However, we believe that            
          the analysis upon which the holding in Security Bank Minn. was              
          based compels us to hold against respondent's argument that                 
          section 1281(a)(1) applies in the instant case.                             
               Our holding in Security Bank Minn. that section 1281(a)(2)             
          did not apply to loans made by banks in the ordinary course of              


               3Respondent has made no argument that the issues presented             
          are of great overall significance.  Sec. 448 generally precludes            
          corporations with more than $5 million in gross receipts from               
          using the cash method of accounting.  Thus, our holdings appear             
          to have application only to small banks.                                    




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