[Code of Federal Regulations]
[Title 26, Volume 3]
[Revised as of April 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.171-5]

[Page 172-173]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1--INCOME TAXES--Table of Contents
 
Sec. 1.171-5  Effective date and transition rules.

    (a) Effective date--(1) In general. Sections 1.171-1 through 1.171-4 
apply to bonds acquired on or after March 2, 1998. However, if a holder 
makes the election under Sec. 1.171-4 for the taxable year containing 
March 2, 1998, or any subsequent taxable year, Secs. 1.171-1 through 
1.171-4 apply to bonds held on or after the first day of the taxable 
year in which the election is made.
    (2) Transition rule for use of constant yield. Notwithstanding 
paragraph (a)(1) of this section, Sec. 1.171-2(a)(3) (providing that the 
bond premium allocable to an accrual period is determined with reference 
to a constant yield) does not apply to a bond issued before September 
28, 1985.
    (b) Coordination with existing election. A holder is deemed to have 
made the election under Sec. 1.171-4 for the taxable year containing 
March 2, 1998, if the

[[Page 173]]

holder elected to amortize bond premium under section 171 and that 
election is effective on March 2, 1998. If the holder is deemed to have 
made the election under Sec. 1.171-4 for the taxable year containing 
March 2, 1998, Secs. 1.171-1 through 1.171-4 apply to bonds acquired on 
or after the first day of that taxable year. See Sec. 1.171-4(d) for 
rules relating to a revocation of an election under section 171.
    (c) Accounting method changes--(1) Consent to change. A holder 
required to change its method of accounting for bond premium to comply 
with Secs. 1.171-1 through 1.171-3 must secure the consent of the 
Commissioner in accordance with the requirements of Sec. 1.446-1(e). 
Paragraph (c)(2) of this section provides the Commissioner's automatic 
consent for certain changes. A holder making the election under 
Sec. 1.171-4 does not need the Commissioner's consent to make the 
election.
    (2) Automatic consent. The Commissioner grants consent for a holder 
to change its method of accounting for bond premium with respect to 
taxable bonds to which Secs. 1.171-1 through 1.171-3 apply. Because this 
change is made on a cut-off basis, no items of income or deduction are 
omitted or duplicated and, therefore, no adjustment under section 481 is 
allowed. The consent granted by this paragraph (c)(2) applies provided--
    (i) The holder elected to amortize bond premium under section 171 
for a taxable year prior to the taxable year containing March 2, 1998, 
and that election has not been revoked;
    (ii) The change is made for the first taxable year for which the 
holder must account for a bond under Secs. 1.171-1 through 1.171-3; and
    (iii) The holder attaches to its return for the taxable year 
containing the change a statement that it has changed its method of 
accounting under this section.

[T.D. 8746, 62 FR 68182, Dec. 31, 1997]