A bond is issued on 1/1/x1 for $550,000 with a maturity date of 1/1/x9.It is purchased on a secondary market on 5/1/x6 for $527,000.

What character reclassification is in-scope when the taxpayer disposes of the bond?

a.Capital gain

b.Market discount

c.Original issue discount

d.Holding period

Market discount is thediscount in pricewhen a debt instrument is issued at a price belowits face value.

True

False

The following are examples of debt instruments:

I.U.S. Treasury Bill

II. U.S. Treasury Note

III. Loan

IV. Bond

a.IV

b.I, II, III, IV

c.I, II, IV

d.I, IV

Market discountis the difference between thepurchase priceof a debt instrument after it has been issued and itsface value.Its holder must include in taxable income the sum of the daily portion ofmarket discountaccrued each day in the year that the security is held.

True

False