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. A debt instrument generally is acquired with market discount if its stated redemption price at maturity is greater than its basis immediately after its acquisition. 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. 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. 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. 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.
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. If you own a listed debt instrument, you generally should not rely on the information in the OID list to determine or compare the OID to be reported on your tax return.
The OID amounts listed are figured without reference to the price or date at which you acquired the debt instrument. This section contains publicly offered, long-term debt instruments. For each publicly offered debt instrument in Section I, the list contains the following information. The annual stated or coupon interest rate. This rate is shown as 0. The total OID accrued up to January 1 of a calendar year. This information is not available for every instrument.
For long-term debt instruments issued after July 1, , the daily OID for the accrual periods falling in a calendar year and a subsequent year. This section contains stripped coupons and principal components of U. Treasury and Government-Sponsored Enterprise debt instruments. This section also includes debt instruments backed by U. Treasury securities that represent ownership interests in those securities. The obligations listed in Section II are arranged by maturity date. The short-term obligations listed in this section are arranged by maturity date.
Brokers and other middlemen should rely on the issue price information in Section III only if they are unable to determine the price actually paid by the owner. Certificates of deposit and other face-amount certificates issued at a discount, including syndicated certificates of deposit. OID debt instruments that matured or were entirely called by the issuer before the tables were posted on the IRS website.
Short-term obligations, other than the obligations listed in Section III. Foreign obligations not traded in the United States and obligations not issued in the United States. The following discussions contain specific instructions for brokers and middlemen who hold or redeem a debt instrument for the owner. See Backup Withholding , later. If you must file a Form , furnish a copy to the owner of the debt instrument by January 31 in the year it is due.
File all your Forms with the IRS, accompanied by Form , by February 28 in the year it is due March 31 if you file electronically. You can issue Form OID electronically with the consent of the recipient. For more information, including penalties for failure to file or furnish required information returns or statements, see the current General Instructions for Certain Information Returns. If you redeem a short-term discount obligation for the owner at maturity, you must report the discount as interest on Form INT. To figure the discount, use the purchase price shown on the owner's copy of the purchase confirmation receipt or similar record, or the price shown in your transaction records.
If the owner's purchase price cannot be determined, figure the discount as if the owner had purchased the obligation at its original issue price. A special rule is used to determine the original issue price for information reporting on U. Under this rule, you treat as the original issue price of the T-bill the noncompetitive weighted average of accepted auction bids discount price for the longest-maturity T-bill maturing on the same date as the T-bill being redeemed.
This noncompetitive discount price is the issue price expressed as a percent of principal shown in Section III-A. There are week and week T-bills maturing on the same date as the T-bill being redeemed. The price actually paid by the owner cannot be established by owner or middleman records. You treat as the issue price of the T-bill the noncompetitive discount price expressed as a percent of principal shown in Section III-A for a week bill maturing on the same date as the T-bill redeemed.
You also can report OID on other long-term debt instruments. The OID for the actual dates the owner held the debt instruments during a calendar year. To determine this amount, see Figuring OID , next. You may report a net amount of OID that reflects the offset of OID by the amount of acquisition premium amortization for the year. If you do so, leave box 6 blank. The qualified stated interest paid or credited during the calendar year.
Interest reported here is not reported on Form INT. The qualified stated interest on Treasury inflation-protected securities may be reported on Form INT in box 3 instead. Any interest or principal forfeited because of an early withdrawal that the owner can deduct from gross income. Do not reduce the amounts in boxes 1 and 2 by the forfeiture.
Any backup withholding for this debt instrument. For a covered security acquired with market discount, enter the amount of market discount that accrued during the period the holder owned the debt instrument provided the holder notified you of an election made under section b to include market discount in income as it accrued. Follow the instructions in Regulations section 1. For a covered security acquired with acquisition premium, enter the amount of acquisition premium amortization for the period the holder owned the debt instrument. If a net amount of OID is reported in box 1, box 8, or box 11, as applicable, leave this box blank.
If there is no CUSIP number, give a description of the debt instrument, including the abbreviation for the stock exchange, the abbreviation used by the stock exchange for the issuer, the coupon rate, and the year of maturity for example, NYSE XYZ If the issuer of the debt instrument is other than the payer, show the name of the issuer in this box. The OID on a U. Treasury obligation for the part of the year the owner held the debt instrument. For a taxable covered security acquired at a premium, enter the amount of bond premium amortization allocable to the interest paid during the tax year, unless you were notified in writing that the holder did not want to amortize bond premium under section See Regulations sections 1.
If you are required to report bond premium amortization and you reported a net amount of interest in box 2, leave this box blank. Use to report any tax-exempt OID. Use to report any state income tax withheld for this debt instrument. You can determine the OID on a long-term debt instrument by using either of the following. If the owner held the debt instrument for the entire calendar year, report the OID shown in Section I for the calendar year. If the owner held the debt instrument for less than the entire calendar year, figure the OID to report as follows. Look up the daily OID for the first accrual period in the calendar year during which the owner held the debt instrument.
Multiply the daily OID by the number of days the owner held the debt instrument during that accrual period. Repeat steps 1 and 2 for any remaining accrual periods for the year during which the owner held the debt instrument. If necessary, adjust the OID in 4 to reflect the debt instrument's stated redemption price at maturity. For example, under the regulations, you can use monthly accrual periods in figuring OID for a debt instrument issued after April 3, , that provides for monthly payments.
These rules apply whether or not you sold the CD to the owner. If a coupon from a bearer bond is presented to you for collection before the bond matures, you generally must report the interest on Form INT. However, do not report the interest if either of the following applies. The payee is a foreign person. See Payments to foreign person under Backup Withholding, later. The coupon may have been "stripped" separated from the bond and separately purchased. However, if a long-term bearer bond on the OID list is presented to you for redemption upon call or maturity, you should prepare a Form OID showing the OID for that calendar year, as well as any coupon interest payments collected at the time of redemption.
The backup withholding is deducted at the time a cash payment is made. The IRS notifies you that the payee is subject to backup withholding due to payee underreporting. The payee does not certify, under penalties of perjury, that he or she is not subject to backup withholding under 3 ; or. However, for short-term discount obligations other than government obligations , bearer bonds and coupons, and U.
However, backup withholding applies to any interest payable before maturity when the interest is paid or credited. If the owner of a short-term obligation at maturity is not the original owner and can establish the purchase price of the obligation, the amount subject to backup withholding must be determined by treating the purchase price as the issue price.
However, you can choose to disregard that price if it would require significant manual intervention in the computer or recordkeeping system used for the obligation. If the purchase price of a listed obligation is not established or is disregarded, you must use the issue price shown in Section III. If no cash payments are made on a long-term obligation before maturity, backup withholding applies only at maturity. The amount subject to backup withholding is the OID includible in the owner's gross income for the calendar year when the obligation matures.
The amount to be withheld is limited to the cash paid. If a registered long-term obligation has cash payments before maturity, backup withholding applies when a cash payment is made. The amount subject to backup withholding is the total of the qualified stated interest defined earlier under Definitions and OID includible in the owner's gross income for the calendar year when the payment is made.
If more than one cash payment is made during the year, the OID subject to withholding for the year must be allocated among the expected cash payments in the ratio that each bears to the total of the expected cash payments. For any payment, the required withholding is limited to the cash paid. If the payee is not the original owner of the obligation, the OID subject to backup withholding is the OID includible in the gross income of all owners during the calendar year without regard to any amount paid by the new owner at the time of transfer.
The amount subject to backup withholding at maturity of a listed obligation must be determined using the issue price shown in Section I. If a bearer long-term obligation has cash payments before maturity, backup withholding applies when the cash payments are made. For payments before maturity, the amount subject to withholding is the qualified stated interest defined earlier under Definitions includible in the owner's gross income for the calendar year.
For a payment at maturity, the amount subject to withholding is only the total of any qualified stated interest paid at maturity and the OID includible in the owner's gross income for the calendar year when the obligation matures. The required withholding at maturity is limited to the cash paid. Backup withholding applies in the following situations. For debt instruments held in an account opened after , the payee does not certify, under penalties of perjury, that the TIN given is correct. The requirements for backup withholding and information reporting apply to payments of OID and interest made outside the United States to a U.
The following discussions explain the rules for backup withholding and information reporting on payments to foreign persons. Backup withholding and information reporting are not required for payments of U. For proof of the payee's foreign status, you can rely on the appropriate Form W-8 or on documentary evidence for payments made outside the United States to an offshore account or, in case of broker proceeds, a sale effected outside the United States. Receipt of the appropriate Form W-8 does not relieve you from information reporting and backup withholding if you actually know the payee is a U.
Backup withholding and information reporting are not required for payments of foreign-source OID and interest paid and received outside the United States. However, if the payments are made inside the United States, the requirements for backup withholding and information reporting will apply unless the payee has given you the appropriate Form W-8 or acceptable substitute as proof that the payee is a foreign person.
For more information about backup withholding and information reporting on foreign-source amounts or payments to foreign persons, see Regulations section 1. This section is for persons who prepare their own tax returns. It discusses the income tax rules for figuring and reporting OID on long-term debt instruments. It also includes a similar discussion for stripped bonds and coupons, such as zero coupon bonds available through the Department of the Treasury's STRIPS program and government-sponsored enterprises such as the Resolution Funding Corporation.
However, the information provided does not cover every situation. More information can be found in the regulations under sections through of the Internal Revenue Code. Generally, you include OID in income as it accrues each year, whether or not you receive any payments from the debt instrument issuer. The rules for including OID in income as it accrues generally do not apply to the following debt instruments.
However, see Tax-Exempt Bonds and Coupons , later. The dollar limit includes outstanding prior loans by the lender to the borrower. This exception does not apply if a principal purpose of the loan is to avoid any federal tax. See chapter 1 of Pub. Debt instruments with de minimis OID are not listed in this publication. There are special rules to determine the de minimis amount in the case of debt instruments that provide for more than one payment of principal. Also, the de minimis rules generally do not apply to tax-exempt obligations.
Generally, you can choose to treat all interest on a debt instrument acquired after April 3, , as OID and include it in gross income by using the constant yield method.
For this choice, interest includes stated interest, acquisition discount, OID, de minimis OID, market discount, de minimis market discount, and unstated interest, as adjusted by any amortizable bond premium or acquisition premium. For more information, see Regulations section 1.
A debt instrument you purchased after the date of original issue may have premium, acquisition premium, or market discount. If your debt instrument is a covered security under Regulations section 1. The following rules generally do not apply to contingent payment debt instruments. If your debt instrument other than an inflation-indexed debt instrument has premium, do not report any OID as ordinary income. If your debt instrument has acquisition premium, reduce the OID you report.
In general, your broker will use the rules in Regulations section 1. If your debt instrument has market discount that you choose to include in income currently and if the debt instrument is a covered security under Regulations section 1. Unless you notify your broker in writing that you have not elected to use a constant yield method under section b to determine accruals of market discount, your broker will use a constant yield method to determine accruals of market discount rather than a ratable method. See Market Discount Bonds in chapter 1 of Pub.
For more information concerning premium or market discount on an inflation-indexed debt instrument, see Regulations section 1. Generally, you treat your gain or loss from the sale, exchange, or redemption of an OID debt instrument as a capital gain or loss if you held the debt instrument as a capital asset. If you sold the debt instrument through a broker, you should receive Form B or an equivalent statement from the broker.
Your gain or loss is the difference between the amount you realized on the sale, exchange, or redemption and your basis in the debt instrument. Your basis, generally, is your cost increased by the OID you have included in income each year you held it. In general, to determine your gain or loss on a tax-exempt bond, figure your basis in the bond by adding to your cost the OID you would have included in income if the bond had been taxable. For a covered security, your broker will report the adjusted basis of the debt instrument to you on Form B.
See chapter 4 of Pub. Assume the debt instrument is a capital asset in Larry's hands. All of Larry's loss is capital loss. Treasury obligation, which is shown in box 8. It also shows, in box 2, any qualified stated interest you must include in income. However, any qualified stated interest on Treasury inflation-protected securities can be reported on Form INT in box 3. For a taxable covered security, Form OID may show accrued market discount in box 5, acquisition premium in box 6, or premium in box For a taxable covered security with acquisition premium, box 1 or box 8, as applicable, may show a net amount of OID that reflects the offset of OID by the amount of acquisition premium amortization for the year.
If so, box 6 will be blank. For a covered security with bond premium, box 2 may show a net amount of qualified stated interest that reflects the offset of interest income by the amount of premium amortization for the year. If so, box 10 will be blank. For a tax-exempt OID obligation that is a covered security acquired on or after January 1, , box 11 of Form OID shows the tax-exempt OID on the obligation for the part of the year you owned it.
Do not attach your copy to your tax return. Keep it for your records. If you are required to file a tax return and you receive Form OID showing taxable amounts, you must report these amounts on your return. You may need to refigure the OID shown on Form OID, in box 1 or box 8, to determine the proper amount to include in income if one of the following applies. You bought the debt instrument at a premium or at an acquisition premium.
However, if you bought a covered security at an acquisition premium, you may not have to refigure the OID if your broker reported a net adjusted amount of OID in box 1 or box 8, as applicable, that reflects the adjustment of the OID by the amortized acquisition premium. The debt instrument is a stripped bond or coupon including zero coupon bonds backed by U.
The debt instrument is a contingent payment or inflation-indexed debt instrument. If you disposed of a debt instrument or acquired it from another holder between interest dates, see the discussion under Bonds Sold Between Interest Dates in chapter 1 of Pub. If you are the holder of an OID debt instrument and you receive a Form OID that shows your taxpayer identification number and includes amounts belonging to another person, you are considered a "nominee.
Show the owner of the debt instrument as the "recipient" and you as the "payer. You must also give a copy of the Form OID to the actual owner. However, you are not required to file a nominee return to show amounts belonging to your spouse. See the Form instructions for more information.
When preparing your tax return, follow the instructions under Showing an OID adjustment in the next discussion. Therefore, all filers must use the Form to report OID. List each payer's name if a brokerage firm gave you a Form , list the brokerage firm as the payer and the amount received from each payer on Schedule B Form , line 1. Also include any other OID and interest income for which you did not receive a Form Under your last entry on line 1, subtotal all interest and OID income listed on line 1.
How you figure the OID on a long-term debt instrument depends on the date it was issued. It also may depend on the type of the debt instrument. There are different rules for each of the following debt instruments.
Debt instruments issued after other than debt instruments described in Box 5 and Box 6 under Form OID , earlier. Inflation-indexed debt instruments including Treasury inflation-protected securities issued after January 5, The rules for figuring OID on zero coupon bonds backed by U. However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. See Reduction for acquisition premium , later. You must adjust the listed amount if your debt instrument has a different principal amount.
If your debt instrument is not listed in Section I-A, consult the issuer for information about the issue price and the OID that accrued for that year. If you did not hold the debt instrument the entire year, figure your OID using the following method. This is the OID to include in income unless you paid an acquisition premium. The reduction for acquisition premium is discussed next.
If you bought the debt instrument at an acquisition premium, figure the OID to include in income as follows.
Divide the total OID on the debt instrument by the number of complete months, and any part of a month, from the date of original issue to the maturity date. This is the monthly OID. Subtract from your cost the issue price and the accumulated OID from the date of issue to the date of purchase. If the result is zero or less, stop here. You did not pay an acquisition premium. Divide the amount figured in 2 by the number of complete months, and any part of a month, from the date of your purchase to the maturity date. Subtract the amount figured in 3 from the amount figured in 1.
This is the OID to include in income for each month you hold the debt instrument during the year. If you buy or sell a debt instrument on any day other than the same day of the month as the date of original issue, the ratable monthly portion of OID for the month of sale is divided between the seller and the buyer according to the number of days each held the debt instrument. Your holding period for this purpose begins the day you acquire the debt instrument and ends the day before you dispose of it.
If you hold these debt instruments as capital assets, you must include part of the OID in income each year you own the debt instruments and increase your basis by the amount included. See Constant yield method and the discussions on acquisition premium that follow, later. If your instrument is not listed in Section I-A, consult the issuer for information about the issue price, the yield to maturity, and the OID that accrued for that year. If you did not hold the debt instrument the entire year, figure your OID using either of the following methods. Divide the total OID for a calendar year by for leap years.
Multiply the result in 1 by the number of days you held the debt instrument during that particular year. This computation is an approximation and may result in a slightly higher OID than Method 2. Look up the daily OID for the first accrual period you held the debt instrument during a calendar year. See Accrual period under Constant yield method next. Multiply the daily OID by the number of days you held the debt instrument during that accrual period. If you held the debt instrument for part of both accrual periods, repeat 1 and 2 for the second accrual period.
Add the results of 2 and 3. This is the OID to include in income, unless you paid an acquisition premium. The reduction for acquisition premium is discussed later. This discussion shows how to figure OID on debt instruments issued after July 1, , and before , using a constant yield method. OID is allocated over the life of the debt instrument through adjustments to the issue price for each accrual period. Multiply the adjusted issue price at the beginning of the accrual period by the debt instrument's yield to maturity.
Subtract from the result in 1 any qualified stated interest allocable to the accrual period. An accrual period for any OID debt instrument issued after July 1, , and before is each year period beginning on the date of the issue of the obligation and each anniversary thereafter, or the shorter period to maturity for the last accrual period. Your tax year will usually include parts of two accrual periods.
The OID for any accrual period is allocated equally to each day in the accrual period.
You must include in income the sum of the OID amounts for each day you hold the debt instrument during the year. If your tax year includes parts of two or more accrual periods, you must include the proper daily OID amounts for each accrual period. The daily OID for the initial accrual period is figured using the following formula.
The daily OID for subsequent accrual periods is figured the same way except the adjusted issue price at the beginning of each period is used in the formula instead of the issue price. Reduction for acquisition premium on debt instruments purchased before July 19, If you bought the debt instrument at an acquisition premium before July 19, , figure the OID includible in income by reducing the daily OID by the daily acquisition premium.
Figure the daily acquisition premium by dividing the total acquisition premium by the number of days in the period beginning on your purchase date and ending on the day before the date of maturity. A bond containing no ownership information and for which the physical bearer is presumed to be the owner.
Coupons are physically attached to the bond and must be presented to the issuer to receive interest payments. Coupon bonds have not been issued in the United States since , and thus they have become a significantly less important activity ; most references to bearer bonds apply to very old bonds that have not yet matured. A bond with interest coupons attached.
The coupons are clipped as they come due and are presented by the bond holder for payment of accrued interest. References in periodicals archive? An inflation-indexed bond that does not qualify for the coupon bond method e. This was accomplished by orthogonalizing the market and industry variables to the rates of return on the time weighted index of zero coupon bonds. Over the next half century, corporations gradually abandoned bearer bonds completely. Curiously, local and regional governments in the U.
Internal Revenue Service outlawed their use after The formats and appearances of bonds were matters of corporate decision. Designs followed no set rules. Prior to the s, most bearer bonds were printed in horizontal formats wider than they were tall. Bearer bonds usually had coupons attached that sequentially came due every six months. From the s forward, bearer bonds were normally printed in vertical formats taller than they were wide. During that period, registered bonds were normally printed in horizontal formats and did not carry coupons.
The American Bank Note Company normally designed their bonds so the word "Registered" appeared in a colored underprint. I stress again, however, that there were no set rules. Once bearer bonds began disappearing starting around , registered bonds again switched formats and ultimately were printed exclusively in vertical formats. Registered bond from the Carolina Clinchfield and Ohio Railway, Send an email message with corrections, questions or comments about this page.
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