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The coupon bond method or the discount bond method. In this
case, the coupon method applies to petitioner’s inflation-indexed
debt instrument. Sec. 1.1275-7(d), Income Tax Regs. The Bureau
provided the following information as to petitioner’s inflation-
indexed debt instrument, CUSIP 9128272M3, which was received into
evidence:
The value of the Inflation-Indexed security keeps
pace with inflation and rises along with it. However,
if deflation prevails over the life of the security,
the investor is guaranteed the original par amount of
the security at maturity. The Original Issue Discount
amount of $227.25, reported in 1998, represents how
much the security’s value increased because of
inflation, even though the investor will not receive
the inflated principal until maturity.
Petitioner failed to offer any evidence or testimony to
support his contention that the inflation-indexed debt income is
not includable in income during 1998. Accordingly, we find that
the income accrued in 1998 on the inflation-indexed debt is
includable in petitioner’s income.
We have considered all arguments by the parties, and, to the
extent not discussed above, conclude that they are irrelevant or
without merit.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
for respondent.
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