When a taxable bond is issued at a premium, the taxpayer must calculate and apply the yearly amortization amount to reduce a portion of the actual interest payments that taxpayers include in gross income.

Question

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When a taxable bond is issued at a premium, the taxpayer must reduce the actual interest payments by amortization each year. This is done so that the taxpayer does not include the entire premium as income in the year of purchase, but instead spreads it out over the life of the bond.

When a Taxable Bond Is Issued at a Premium, the Taxpayer