Final answer:
Taxpayers generally prefer the tax treatment of market discount to the treatment of original issue discount on corporate bonds because it can provide a tax advantage.
Step-by-step explanation:
Taxpayers generally prefer the tax treatment of market discount to the treatment of original issue discount on corporate bonds because it can provide a tax advantage. Market discount is the difference between the purchase price of a bond and its face value. When a bond with market discount is sold or redeemed, the discount amount is treated as taxable income, but it is taxed at the capital gains rate, which is typically lower than the ordinary income tax rate. On the other hand, original issue discount is the difference between the face value of a bond and its issue price. It is generally taxable as ordinary interest income when the bond is redeemed or matures, which means it is subject to the higher ordinary income tax rate.