123STA T . 33 9PUBLIC LA W 111 –5—FE B.1 7, 2 0 09 instrume nt b ein g re acq uire d, t h e deducti o ns sha l lbedis - allo w ed in the order in which the original issue discount is accrued .‘ ‘ (B)DE E M E D DE BTFOR DEBT E XCHANG E S . —F or p ur- poses o f subparagraph ( A ),ifan y debt instrument is issued by an issuer and the proceeds of such debt instrument are used directly or indirectly by the issuer to reacquire an applicable debt instrument of the issuer, the debt instrument so issued shall be treated as issued for the debt instrument being reacquired. I f only a portion of the proceeds from a debt instrument are so used, the rules of subparagraph (A) shall apply to the portion of any original issue discount on the newly issued debt instrument which is equal to the portion of the proceeds from such instrument used to reacquire the outstanding instrument. ‘‘( 3 )A P P LI CABLE DEBT INSTR U MENT.—For purposes of this subsection— ‘‘(A) APPLICABLE DEBT INSTRUMENT.— T he term ‘applicable debt instrument ’ means any debt instrument which was issued by— ‘‘(i) a C corporation, or ‘‘(ii) any other person in connection with the con- duct of a trade or business by such person. ‘‘(B) DEBT INSTRUMENT.—The term ‘debt instrument’ means a bond, debenture, note, certificate, or any other instrument or contractual arrangement constituting indebt- edness (within the meaning of section 1275 (a)(1)). ‘‘( 4 ) R EAC Q UISITION.—For purposes of this subsection— ‘‘(A) IN GENERAL.—The term ‘reacquisition’ means, with respect to any applicable debt instrument, any acquisition of the debt instrument by— ‘‘(i) the debtor which issued (or is otherwise the obligor under) the debt instrument, or ‘‘(ii) a related person to such debtor. ‘‘(B) ACQUISITION.—The term ‘acquisition’ shall, with respect to any applicable debt instrument, include an acquisition of the debt instrument for cash, the e x change of the debt instrument for another debt instrument (including an exchange resulting from a modification of the debt instrument), the exchange of the debt instrument for corporate stoc k or a partnership interest, and the con- tribution of the debt instrument to capital. S uch term shall also include the complete forgi v eness of the indebted- ness by the holder of the debt instrument. ‘‘(5) O THER DEFINITIONS AND RULES.—For purposes of this subsection— ‘‘(A) RELATED PERSON.—The determination of whether a person is related to another person shall be made in the same manner as under subsection (e)(4). ‘‘(B) E LECTION.— ‘‘(i) IN GENERAL.—An election under this subsection with respect to any applicable debt instrument shall be made by including with the return of tax imposed by chapter 1 for the taxable year in which the reacquisition of the debt instrument occurs a statement which— ‘‘(I) clearly identifies such instrument, and Regulations.Ap pli c a b ilit y .
