Sections I-A through III-G available online.(p1)
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This publication has two purposes. Its primary purpose is to help brokers and other middlemen identify publicly offered original issue discount (OID) debt instruments they may hold as nominees for the true owners, so they can file Forms 1099-OID or Forms 1099-INT as required. The other purpose of the publication is to help owners of publicly offered OID debt instruments determine how much OID to report on their income tax returns.
The list of publicly offered OID debt instruments (OID list) is on the IRS website (see What's New on page 1). The information on this list comes from the issuers of the debt instruments and from financial publications and is updated annually. (However, see Debt Instruments Not on the OID List, later.)
Brokers and other middlemen can rely on this list to determine, for information reporting purposes, whether a debt instrument was issued at a discount and the OID to be reported on information returns. However, because the information in the list has generally not been verified by the IRS as correct, the following tax matters are subject to change upon examination by the IRS.
- The OID reported by owners of a debt instrument on their income tax returns.
- The issuer's classification of an instrument as debt for federal income tax purposes.
In general, issuers of publicly offered OID debt instruments must, within 30 days after the issue date, report information about the instruments to the IRS on Form 8281, Information Return for Publicly Offered Original Issue Discount Instruments. See the form instructions for more information.
Issuers should report errors in and omissions from the list in writing at the following address:
IRS OID Publication Project
1111 Constitution Ave. NW, IR-6526
Washington, D.C. 20224
Brokers and other middlemen must follow special information reporting requirements for real estate mortgage investment conduits (REMIC) regular, and collateralized debt obligations (CDO) interests. The rules are explained in Publication 938, Real Estate Mortgage Investment Conduits (REMICs) Reporting Information (And Other Collateralized Debt Obligations (CDOs)).
Holders of interests in REMICs and CDOs should see chapter 1 of Publication 550 for information on REMICs and CDOs.taxmap/pubs/p1212-000.htm#en_us_publink1000206275
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We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.taxmap/pubs/p1212-000.htm#TXMP2af08cbc
You may want to see:
Publication 515 Withholding of Tax on Nonresident Aliens and Foreign Entities 550 Investment Income and Expenses 938 Real Estate Mortgage Investment Conduits (REMICs) Reporting Information (And Other Collateralized Debt Obligations (CDOs)). Form (and Instructions) 1096: Annual Summary and Transmittal of U.S. Information Returns 1099-B: Proceeds From Broker and Barter Exchange Transactions 1099-INT: Interest Income 1099-OID: Original Issue Discount Schedule B (Form 1040): Interest and Ordinary Dividends Schedule D (Form 1040): Capital Gains and Losses W-8: Instructions for the Requester of Forms W-8BEN, W-8ECI, W-8EXP, and W-8IMY
See How To Get Tax Help near the end of the text for information about getting publications and forms.taxmap/pubs/p1212-000.htm#en_us_publink1000206276
The following terms are used throughout this publication. "Original issue discount" is defined first. The other terms are listed alphabetically.taxmap/pubs/p1212-000.htm#en_us_publink1000206277
OID is a form of interest. It is the excess of a debt instrument's stated redemption price at maturity over its issue price (acquisition price for a stripped bond or coupon). Zero coupon bonds and debt instruments that pay no stated interest until maturity are examples of debt instruments that have OID.taxmap/pubs/p1212-000.htm#en_us_publink1000206278
An accrual period is an interval of time used to measure OID. The length of an accrual period can be 6 months, a year, or some other period, depending on when the debt instrument was issued.taxmap/pubs/p1212-000.htm#en_us_publink1000206279
Acquisition premium is the excess of a debt instrument's adjusted basis immediately after purchase, including purchase at original issue, over the debt instrument's adjusted issue price at that time. A debt instrument does not have acquisition premium, however, if the debt instrument was purchased at a premium. See Premium, later. taxmap/pubs/p1212-000.htm#en_us_publink1000206280
The adjusted issue price of a debt instrument at the beginning of an accrual period is used to figure the OID allocable to that period. In general, the adjusted issue price at the beginning of the debt instrument's first accrual period is its issue price. The adjusted issue price at the beginning of any subsequent accrual period is the sum of the issue price and all the OID includible in income before that accrual period minus any payment previously made on the debt instrument, other than a payment of qualified stated interest.taxmap/pubs/p1212-000.htm#en_us_publink1000206281
The term "debt instrument" means any instrument or contractual arrangement that constitutes indebtedness under general principles of federal income tax law (including, for example, a bond, debenture, note, certificate, or other evidence of indebtedness). It generally does not include an annuity contract.taxmap/pubs/p1212-000.htm#en_us_publink1000206282
For debt instruments listed in Section I-A and Section I-B, the issue price generally is the initial offering price to the public (excluding bond houses and brokers) at which a substantial amount of these instruments was sold.taxmap/pubs/p1212-000.htm#en_us_publink1000206283
Market discount arises when a debt instrument purchased in the secondary market has decreased in value since its issue date, generally because of an increase in interest rates. An OID debt instrument has market discount if your adjusted basis in the debt instrument immediately after you acquired it (usually its purchase price) was less than the debt instrument's issue price plus the total OID that accrued before you acquired it. The market discount is the difference between the issue price plus accrued OID and your adjusted basis.taxmap/pubs/p1212-000.htm#en_us_publink1000206284
A debt instrument is purchased at a premium if its adjusted basis immediately after purchase is greater than the total of all amounts payable on the debt instrument after the purchase date, other than qualified stated interest. The premium is the excess of the adjusted basis over the payable amounts. See Publication 550 for information on the tax treatment of bond premium.taxmap/pubs/p1212-000.htm#en_us_publink1000206285
In general, qualified stated interest is stated interest that is unconditionally payable in cash or property (other than debt instruments of the issuer) at least annually over the term of the debt instrument at a single fixed rate.taxmap/pubs/p1212-000.htm#en_us_publink1000206286
A debt instrument's stated redemption price at maturity is the sum of all amounts (principal and interest) payable on the debt instrument other than qualified stated interest.taxmap/pubs/p1212-000.htm#en_us_publink1000206287
In general, the YTM is the discount rate that, when used in figuring the present value of all principal and interest payments, produces an amount equal to the issue price of the debt instrument. The YTM is generally shown on the face of the debt instrument or in the literature you receive from your broker. If you do not have this information, consult your broker, tax advisor, or the issuer.