William J. Brennan, Jr.

“ Thus, the taxpayer has not demonstrated that, in specifying ordinary income treatment for original issue discount in particular situations, Congress evinced its understanding that such discount would otherwise be entitled to capital gains treatment. Therefore we turn to the question whether Treasury practice and decisional law preclude ordinary income treatment. ”

“ The more favorable capital gains treatment applied only to gain on 'the sale or exchange of a capital asset.' § 117 (a) (4) . Although original issue discount becomes property when the obligation falls due or is liquidated prior to maturity and § 117 (a) (1) defined a capital asset as 'property held by the taxpayer,' [3] we have held that
'not everything which can be called property in the ordinary sense and which is outside the statutory exclusions qualifies as a capital asset. ”

“ Similarly, earned original issue discount cannot be regarded as 'typically involving the realization of appreciation in value accrued over a substantial period of time * * * (given capital gains treatment) to ameliorate the hardship of taxation of the entire gain in one year.'
Earned original issue discount serves the same function as stated interest, concededly ordinary income and not a capital asset ”